Foreign appetite for Canadian securities hits highest level in two years

StatsCan data shows strong foreign inflows as Canadian investors reduce their foreign holdings by the most since March 2020

Foreign appetite for Canadian securities hits highest level in two years

New figures from Statistics Canada show that in March, foreign investors bought $46.9 billion in Canadian securities, the most since April 2020. Meanwhile, following a $9.9 billion divestiture in February, Canadian investors cut their holdings in foreign securities by $24.0 billion.

As a result, international securities transactions produced a historic $70.9 billion net influx of capital into the Canadian economy in March. Inflows of capital totaled $119.7 billion in the first quarter, the highest amount ever recorded since records began.

This action took place against a backdrop of rising interest rates and prices, as well as global geopolitical instability.

March’s tremendous foreign investment inflows came primarily from outside investors adding Canadian corporate bonds to their portfolios. Foreign investment in Canadian securities was $74.5 billion in the first quarter of 2022, compared to $16.1 billion in the same period of 2021.

In March, $30.3 billion was spent on foreign purchases of Canadian bonds. Non-resident investors bought $30.6 billion in private corporate bonds in the first two months of the year, bringing the total amount purchased to $37.2 billion.

During the month, the focus was mostly on new bonds issued by Canadian chartered banks that were denominated in foreign currencies. Foreign investors also added $7.0 billion to their federal government bond holdings. Long-term interest rates in Canada hit new highs in March, surpassing those seen in October 2018.

Foreign investors put $14.1 billion into Canadian stocks, with manufacturing, commerce, and transportation stocks leading the way in March. The S&P/TSX composite index rose 3.6% to a new high in the same month.

In an about-face from their buying behaviour in February, Canadian investors sold $24.0 billion worth of foreign securities, the most substantial drop since March 2020. The drop in the month was primarily due to overseas stock sales, which were offset by purchases of US bonds. Canadian divestment in overseas securities was $45.3 billion in the first quarter of 2022. This came after a period of high demand for these assets, culminating in a $165.5 billion investment in 2021.

In March, Canadian investors cut their international equity market exposure by $27.6 billion. Additionally, they bought $3.6 billion worth of foreign debt securities, mostly bonds.

Long-term interest rates in the United States reached their highest levels since May 2019 in March.