Canada’s international transactions in securities for February 2024 revealed significant shifts in investment patterns, with Canadian investors increasing their stake in foreign securities while foreign investors reduced their exposure to Canadian assets.
In February, Canadian investors showed renewed interest in foreign securities, acquiring $24.2 billion worth of assets. This rebound came after a $7.6 billion divestment in January. The surge was primarily driven by an unprecedented investment in foreign bonds, reaching a record $16.3 billion.
The breakdown of the bond investments shows that Canadian investors allocated $9.1 billion towards US government bonds and $4.5 billion towards non-US foreign bonds, predominantly government instruments. The uptick in US long-term interest rates, reaching levels not seen since November 2023, possibly contributed to this heightened interest in bonds.
Additionally, Canadian investment in US equities reached $9.1 billion in February, marking a significant rebound from the $7.7 billion divestment recorded in January. The focus was largely on large capitalization technology shares, reflecting a broader trend of increased interest in the tech sector. The rise in US share prices, with the S&P 500 composite index up 5.2% in February, likely bolstered this investment sentiment.
Conversely, foreign investors reduced their exposure to Canadian securities by $8.8 billion in February, resulting in a net outflow of $33.0 billion from the Canadian economy. This reduction followed three consecutive months of substantial investment totaling $31.0 billion.
The most notable divestment was in Canadian government short-term debt securities, with foreign investors pulling back by an unprecedented $15.1 billion. This included $11.8 billion from federal government paper and $3.3 billion from provincial government paper. The trend of divestment in Canadian private corporate paper continued from January, with an additional $15.5 billion reduction.
However, foreign acquisitions of Canadian corporate bonds offered some respite, reaching $13.3 billion in February, the highest in a year. Notably, the issuance of US-dollar denominated bonds by Canadian chartered banks was a significant driver of these acquisitions.
Foreign investors also reduced their exposure to Canadian equity securities by $2.7 billion in February. This divestment was widespread across sectors, with the exception of the banking sector, which saw a $3.0 billion foreign investment. Despite the foreign divestment, Canadian share prices, as measured by the S&P/Toronto Stock Exchange composite index, continued their upward trajectory for a fourth consecutive month.
February’s international transactions in securities highlighted divergent investment trends, with Canadian investors increasing their stake in foreign bonds and US equities, while foreign investors retreated from Canadian securities. The shifting investment landscape underscores the importance of monitoring global economic indicators and market sentiments that influence cross-border investment decisions.