Canada’s financial market saw a positive start to 2025 with foreign investors purchasing $7.9 billion in Canadian securities, primarily focused on bonds. Meanwhile, Canadian investors reduced their exposure to foreign securities, pulling back $3.2 billion in January.
The biggest contributor to this increase in foreign investment was the Canadian bond market. Foreign investors invested $14.5 billion in bonds, the largest such inflow since April 2020. Much of this went into government bonds, with $7.3 billion in federal bonds and $10.8 billion in provincial bonds. Foreign investors also boosted their holdings of Canadian corporate bonds, particularly private ones, which attracted $13.5 billion.
However, not all areas saw growth. Foreign investment in Canadian money market instruments dropped by $18.9 billion, the largest decrease since February 2024, suggesting a shift from short-term investments to longer-term bonds.
On the other hand, Canadian investors reduced their foreign securities holdings by $3.2 billion in January. The bulk of this came from selling $17.6 billion in foreign equities, the largest divestment in nearly three years. This mainly involved US stocks, which saw $15.6 billion in sales.
While Canadians pulled back from equities, they remained active in foreign bonds, purchasing $14.4 billion in foreign debt securities, with most of the investment going into non-US bonds.
Several factors influenced these moves. The Bank of Canada’s decision to lower its policy rate and the depreciation of the Canadian dollar likely made Canadian bonds more attractive to foreign investors. Additionally, while the Canadian stock market saw a positive 3.3% increase in January, foreign investors continued to favor Canadian bonds for stability.
Overall, the shifts resulted in a net inflow of $11.1 billion to Canada in January 2025, reflecting strong foreign interest in Canadian bonds. While Canadians scaled back their foreign investments, the overall trend suggests continued confidence in Canada’s financial outlook.