In December 2024, Canada’s financial markets experienced significant international activity as foreign investors continued to show strong interest in Canadian securities. The month’s international securities transactions generated a net inflow of funds into the Canadian economy amounting to $10.6 billion. This marks a continuation of positive trends seen throughout the year, with the total net inflow for 2024 reaching an impressive $81.1 billion.
A major driver of foreign investment in December was the $13.8 billion increase in Canadian debt securities, particularly federal government bonds. Non-resident investors poured $13.9 billion into these bonds, marking the highest level of investment in Canadian federal debt since April 2020. Foreign investors reduced their exposure to Canadian corporate bonds by $8.2 billion, a sharp turnaround from the previous months.
Meanwhile, investment in Canadian money market instruments showed signs of slowing, with foreign investors purchasing $6.7 billion worth of such assets, down from the $19.5 billion recorded in November. This drop was notably due to a significant decrease in investment in government-issued paper, though private corporate paper saw a solid $5.4 billion influx.
The shift in foreign investment coincided with several economic factors. The Bank of Canada reduced its key policy rate from 3.75% to 3.25% in December, which helped to support market liquidity. At the same time, the Canadian dollar weakened against the US dollar, which may have prompted foreign investors to increase their exposure to Canadian debt.
While foreign interest in Canadian securities remained robust, Canadian investors appeared to exercise caution when making new investments abroad in December. Canadian purchases of foreign securities amounted to $3.8 billion, a stark decrease from the $17.6 billion seen in November. This slowdown was particularly noticeable in acquiring foreign debt securities, with Canadian investors divesting $1.5 billion from foreign bonds.
Looking at the broader picture, 2024 saw strong cross-border portfolio investment, even with fluctuating market conditions. Major central banks, including the Bank of Canada, the Federal Reserve, and the Bank of England, reduced interest rates during the year, providing some relief to financial markets. These policy changes were coupled with a decline in the Canadian dollar, which weakened against most major currencies.
For the full year, foreign investors added $192.9 billion to their Canadian holdings, driven by large acquisitions of federal government bonds (+$100.3 billion) and private corporate bonds (+$78.9 billion). However, the foreign investment in Canadian equities did not match the pace seen in previous years, with a reduction of $7.6 billion in Canadian shares after the large divestment of $48.3 billion in 2023. Despite this, Canada’s stock market performed well, with the S&P/Toronto Stock Exchange composite index rising by 18% in 2024.
In total, Canadian investments in foreign securities amounted to $111.7 billion in 2024, with a significant portion of this directed towards foreign bonds, which saw a 160% increase from 2023. Canadian investors also showed a growing appetite for US equities, with $41.8 billion directed towards US shares, most notably in the technology sector.