Analysis - February 2007

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Canadians continued to invest heavily in foreign securities, buying $6.2 billion worth in February, almost equally split between bonds, stocks and money market paper. Meanwhile, non-residents acquired $4.8 billion worth of Canadian securities, reversing the sell-off in January, with almost all the investment in Canadian equities.

Investment in foreign bonds focuses on maple bonds

Canadians bought $2.3 billion worth of foreign bonds in February, slowing the pace from January's record purchase of $6.2 billion and a record annual purchase of $43.6 billion in 2006. Canadian investment in maple bonds, the Canadian dollar denominated foreign bonds, showed no signs of slowdown. Adding to a $4.6 billion investment in January, residents acquired another $4.8 billion worth in February, with about 60% ($2.9 billion) issued by overseas issuers.

Residents shifted their investment focus in the type of US bonds as they sold off $3.4 billion worth of US government bonds while acquiring $4.0 billion in US corporate bonds.

Near-record investment in overseas paper

Canadians purchased $1.9 billion worth of foreign money market paper in February, reversing a $1.8 billion sell-off the month before. This was largely due to investment in overseas paper swinging from a $1.5 billion disposition to a near-record purchase of $2.0 billion. In addition, Canadians invested $270 million in US government treasury bills after two consecutive months of nominal activity. In February, US short-term rates hit the highest point in six years with rates more favourable to invest in the United States than in Canada.

Strong investment in overseas shares

Canadian acquisition of foreign shares remained strong in February at $1.9 billion, following three consecutive months of robust purchases totalling $8.4 billion. Over three-quarters of February's investment was in overseas shares, amounting to $1.5 billion and adding to a $1.8 billion purchase in January. Canadian investment in US shares slowed to $445 million in February, following two consecutive months of buying totalling $2.8 billion.

Non-residents continue to sell off Canadian bonds

Following two consecutive months of sizable dispositions totalling $5.0 billion, non-residents sold off another $468 million worth from their holdings of Canadian bonds in February.

On a sector basis, February's foreign divestment was concentrated in Federal government bonds, totalling $1.2 billion, and almost entirely due to bond retirements. Meanwhile, non-residents acquired $514 million worth of provincial government bonds, fuelled by a $1.1 billion of net new issues over the month.

Currency wise, non-residents continued to reduce their holdings of Canadian bonds denominated in Canadian dollars with divestment totalling $1.3 billion, led by the retirement of Federal government bonds. On the other hand, they acquired $870 million worth of Canadian bonds denominated in foreign currencies, $306 million in US dollar and $564 million in other foreign currencies. In February, the Canadian dollar gained over half of a US cent after depreciating against the US dollar for five consecutive months.

Foreign investment in Canadian shares reaches a 10-monthhigh

February saw non-residents invest $5.1 billion in Canadian stocks, the highest level since April 2006 and nearly half the total amount acquired in 2006. In February, the Canadian stock prices remained robust while US stock prices fell for the first time in nine months, with the Standard and Poor's 500 Composite Index dropping 2.2%.

Over 90% of February's investment was in outstanding shares totalling $4.7 billion. Shares of oil and gas extraction firms and mining firms topped the investment list. On a regional basis, American investors alone bought $5.4 billion worth, almost all outstanding shares. Meanwhile, placements of new Canadian shares were active in the United Kingdom, totalling $274 million.

Foreign investors buy Canadian federal enterprise paper

Non-residents bought $230 million worth of Canadian money market paper in February, switching from a $761 million sell-off the month before. On a sector basis, February's investment was entirely in federal enterprise paper with non-residents buying $707 million worth, the highest level of acquisition since July 2006. This was partially offset by a $106 million sell-off of Federal Government treasury bills and a $304 million disposition of corporate paper.