In September 2023, Canada witnessed a dynamic shift in its international securities transactions, revealing a complex interplay of investments, retirements, and market fluctuations. The recently released data by Statistics Canada paints a vivid picture of the country’s economic engagement with the global financial landscape.
One of the key takeaways from the report is the net outflow of funds from the Canadian economy amounting to $26.7 billion in September 2023. This shift was primarily propelled by a substantial reduction in foreign investors’ holdings of Canadian securities, particularly bonds, which saw retirements totaling $15.1 billion. Concurrently, Canadian investors showed a penchant for foreign securities, acquiring $11.6 billion, marking the largest investment since the final quarter of 2021.
This resulted in a record-breaking outflow of funds, reaching $41.4 billion in the third quarter. This substantial outflow effectively neutralized the $39.4 billion inflow recorded in the initial half of the year, emphasizing the significance of the developments in the latter part of 2023.
A standout feature of the report is the largest retirement of Canadian bonds since December 2018. Non-resident investors decreased their exposure to Canadian securities by $15.1 billion, primarily due to retirements, with total retirements amounting to $20.4 billion. The retirements affected both government and corporate bonds, with the latter prominently consisting of instruments backed by mortgages. The surge in retirements was notably influenced by a spike in Canadian long-term interest rates, reaching the highest level since December 2007.
In contrast, foreign investors showed renewed interest in Canadian equities, acquiring $1.6 billion in Canadian shares in September 2023 after nine consecutive months of divestment. However, this enthusiasm was dampened by a divestment in shares from the banking sector, contributing to a 3.7% drop in Canadian share prices, as indicated by the S&P/TSX index.
On the Canadian side, investors displayed a robust appetite for foreign securities, particularly bonds. Canadian investors added $11.6 billion to their holdings in September, with a notable emphasis on non-US foreign bonds, reaching the highest level in a year. The investment, totaling $10.5 billion, was largely directed towards government bonds. Additionally, investors acquired $3.8 billion of US bonds in the same period, following a trend of rising US long-term interest rates, which reached their highest level since October 2007.
Although Canadian acquisitions of foreign shares slowed to $1.7 billion in September, the overall investment in foreign shares for the third quarter amounted to $20.3 billion, the highest since the last quarter of 2021. This occurred against the backdrop of decreasing share prices in major foreign equity markets in September 2023.