Canada continued to experience a significant capital flight in May as domestic investors poured billions into foreign markets while international investors continued to scale back their exposure to Canadian assets.
Canadian investors purchased $13.4 billion in foreign securities during the month, up from $4.1 billion in April. The majority focused on U.S. equities, coinciding with a strong rebound in American markets.
At the same time, non-resident investors sold off $2.8 billion in Canadian securities, marking the fourth consecutive month of foreign divestment. The resulting net outflow totalled $16.2 billion for May, bringing the cumulative total for the year to $83.9 billion.
Canadians significantly increased their holdings of foreign shares in May, with $11.5 billion in purchases—the highest level since February. This was largely driven by a $14.2 billion investment in U.S. equities, partially offset by $2.8 billion in sales of non-U.S. shares.
The surge in demand for U.S. stocks aligned with a 6.2 per cent rise in the S&P 500 index, ending a three-month streak of declines. Canadian investors also acquired $1.9 billion in foreign debt securities, primarily U.S. corporate and non-U.S. bonds. Meanwhile, they reduced holdings in U.S. government debt, including a $2.8 billion pullback from Treasury bills and $1.3 billion from longer-term bonds, amid rising U.S. interest rates.
Foreign divestment from Canadian securities continued, with $11.4 billion withdrawn from domestic equities. The reduction spanned several sectors, including energy, mining, manufacturing, and corporate management. Despite the sell-off, the S&P/TSX Composite Index advanced 5.4 per cent in May, recovering from previous monthly declines.
In addition, foreign investors pulled $4.5 billion from Canadian money market instruments, with the majority, $4 billion, coming from federal short-term debt. The exit suggests waning interest in lower-yield, short-term Canadian securities.
One area that attracted international investment was the Canadian bond market. Foreign investors acquired $13.1 billion in bonds during the month, following a $25.1 billion divestment in April. The increase was led by purchases of provincial and federal government bonds, totalling $14.9 billion. This activity was partially offset by $4.2 billion in sales of other bond categories.
With capital leaving the economy for a fourth consecutive month, the trend points to shifting investor sentiment and evolving international dynamics that could shape future policy considerations.