More foreign money flows into Canadian securities

Non-residents investment in Canadian securities strengthened substantially in May with foreign inflows amounting to $23.2 billion, most notably for federal government debt instruments. Meanwhile, Canadian investors sold $2.9 billion of foreign securities from their holdings, the largest repatriation of funds from abroad since January.

Non-residents acquired $15.2 billion of Canadian bonds in May, the largest investment since the high of $19.5 billion in May 2009. Foreign acquisitions of federal government bonds alone strengthened to $11.5 billion, with purchases covering a wide range of maturities. Yields on federal government bonds declined significantly in May to their lowest levels since April 2009.

Federal government enterprise and provincial bonds also drew sizeable foreign inflows in May, mainly due to acquisitions of new issues. Overall, foreign acquisitions in May focused predominately on Canadian dollar-denominated instruments, as the Canadian dollar retreated against the US dollar for the first time in four months. Geographically, US investors dominated while investors from the United Kingdom and Asian countries also made large contributions to the inflows over the month.

Foreign purchases of Canadian stocks nearly doubled in May to $5.3 billion, the largest inflow so far in 2010. Foreign investment in Canadian shares was widespread across all sectors of the Toronto Stock Exchange, except for the energy and banking sectors. In May, Canadian stock prices fell 3.7%, the first retreat in four months.

Canadian investors sold $5.3 billion of foreign bonds in May. This activity was mainly comprised of a $3.1 billion divestment of US government bonds. Canadians also disposed of $1.7 billion of non-US foreign bonds, largely European sovereign bonds. In May, US long-term interest rates fell nearly 60 basis points, the largest monthly decline since December 2008.

Meanwhile, Canadians added $317 million of foreign money market instruments to their holdings in May. This was all accounted for by acquisitions of US Government Treasury bills. Residents, however, continued to reduce their holdings of paper issued by foreign banks and other financial institutions over the month.

Canadians added a further $2.1 billion to their holdings of foreign stocks, all in US shares. Domestic mutual funds were active in their acquisitions of US shares over the month. In May, US equity prices fell 8.2%, the largest decline since February 2009. Canadians have now purchased US shares for seven months in a row, while investment activity in non-US foreign shares remained marginal for a second month.