Analysis – August 2008
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Foreign divestment in Canadian securities slowed to $730 million in August. Foreign investors sold Canadian shares at a faster pace in August but returned to the Canadian bond market, adding private corporate and federal government bonds to their portfolios.
Meanwhile, Canadian holdings of foreign securities edged down $172 million. Canadian investors further reduced their holdings of foreign debt instruments in August, almost all short-term debt instruments. However, they carried on robust investment in foreign equities.
Foreign acquisitions of Canadian bonds resume
Non-residents invested $3.7 billion in Canadian bonds in August, replenishing bonds retired in July. Foreign demand was driven by new bonds issued by private corporations (nearly all US dollar-denominated) and outstanding federal government bonds. This activity was partially offset by a foreign divestment in federal government enterprise bonds.
Meanwhile, non-residents acquired Canadian money market instruments for a fifth consecutive month, buying a nominal $95 million in August. Nonetheless, foreign holdings of Canadian paper reached their highest level since July 2007, as the Canadian dollar experienced a 3.5 cents US decline in August.
Note to readers
All values in this release are net transactions unless otherwise stated.
The data series on international security transactions cover portfolio transactions in stocks, bonds and money market instruments for both Canadian and foreign issues.
Stocks include common and preferred equities, as well as warrants.
Debt securities include bonds and money market instruments.
Bonds have an original term to maturity of more than one year.
Money market instruments have an original term to maturity of one year or less. Government of Canada paper includes treasury bills and US-dollar Canada bills.
Non-residents sell Canadian energy and mining shares
Non-residents' selling of Canadian equities sped up in August. Foreign investors sold $4.5 billion of Canadian shares, mainly mining and energy shares. Canadian stock prices appreciated slightly in August while commodity and energy prices continued to fall from June peaks.
Canadian holdings of foreign debt instruments decline
Canadians sold $1.3 billion of foreign money market paper in August. Over 70% was in US government treasury bills and the rest in US corporate paper, primarily issues of banks and other financial institutions.
Canadians have significantly reduced their holdings of foreign money market instruments during the turmoil in the credit markets. By August month end, overall holdings had been reduced by over 70% from the July 2007 peak. Holdings of foreign paper issued by the financial sector were the most affected, dropping nearly 90%. In contrast, holdings of foreign government paper increased by around 75%, reflecting a higher demand for paper with lower credit risk.
For their part, Canadians' holdings of foreign bonds remained steady in August, following sizeable declines two months in a row totalling $4.0 billion. Divestment in US government bonds was almost equally matched by investment in other foreign bonds. On a currency basis, August saw marginal acquisitions of maple bonds by Canadians after six consecutive months of divestment.
Canadian demand for US shares continues
Canadians purchased $1.2 billion of foreign stocks in August, adding to July's $2.5 billion acquisition. For both months, investment focused on US stocks and was spread across a wide variety of sectors. In August, US stock prices recovered from the loss posted in July.
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