Canada’s financial landscape experienced significant changes in February, with Canadian investors heavily investing in foreign securities, while foreign investors pulled back from Canadian stocks, resulting in a net outflow of funds from the country.
Canadian investors made a strong recovery in February, purchasing $27.2 billion in foreign securities. This marked a sharp rebound from the $3.0 billion divestment seen in January. A major portion of this investment—$29.8 billion—was directed into US equities, reflecting growing confidence in the US stock market. This investment comes after a large divestment in January, underscoring the volatility in global markets.
The investment focus was primarily on large-cap technology and financial firms, as the S&P 500 index reached an all-time high in mid-February before ending the month slightly lower. Despite fluctuations, Canadian investors remained optimistic, contributing to the record inflows.
However, Canadian investors reduced their holdings in foreign debt securities by $0.7 billion, although they increased their exposure to US government money market instruments and US corporate bonds.
In contrast to Canadian investors, foreign investors reduced their exposure to Canadian securities. In February, they pulled $6.5 billion out of Canadian markets, the first divestment in a year. This pullback was driven by a $21.9 billion reduction in Canadian equity holdings, the largest drop since October 2007.
The divestment affected several sectors, including manufacturing, energy, and mining, as Canadian equities saw a slight decline. Despite this, foreign interest in Canadian bonds remained strong, with $9.9 billion in foreign investment in Canadian debt securities.
Foreign investors also showed interest in Canadian money market instruments. Investments in corporate paper and provincial government paper increased by $7.3 billion and $1.9 billion, respectively, indicating a preference for more stable, short-term investments.
The Bank of Canada kept its policy rate steady at 3.0% in February, aiming to balance inflation control with economic growth. The Canadian dollar appreciated slightly by 0.3% against the US dollar during the same period, providing some stability for investors.