Canadian investors ramped up their purchases of foreign securities in March, widening the investment gap with foreign buyers.
Canadians acquired $15.6 billion in foreign securities during the month. At the same time, foreign investors pulled $4.2 billion from Canadian markets, marking the second straight month of divestment. Together, they led to a net outflow of $19.9 billion, the largest monthly outflow so far this year and part of a $45.9 billion outflow for the first quarter.
Most of the foreign purchases in March went toward U.S. debt. Canadians bought $9.3 billion in U.S. bonds and $1.8 billion in U.S. government money market instruments. Meanwhile, they sold $1.8 billion in non-U.S. foreign debt, showing a clear preference for American assets.
Canadian investment in foreign stocks totalled $7 billion in March, down from $27.8 billion in February. Of that, $5 billion went into U.S. shares. The slowdown came as U.S. stock prices fell in March after reaching record highs in February, based on the S&P 500 index.
Foreign investors sold $12 billion in Canadian shares in March, following a $21.9 billion selloff in February. The biggest withdrawals were from the banking, trade and transportation, and energy and mining sectors. The Toronto Stock Exchange’s S&P/TSX composite index dropped 1.9% during the month.
Despite the equity selloff, foreign investors added $11.9 billion in Canadian bonds. Purchases in this category reached $13.1 billion, partly offset by sales of bonds issued by federal government enterprises.
At the same time, foreign investors reduced their holdings of Canadian money market instruments by $4.1 billion, with the biggest pullback seen in federal government short-term paper.
In March, the Bank of Canada cut its policy interest rate to 2.75 per cent. The Canadian dollar rose by 0.4 per cent against the U.S. dollar, as a short-term effect of tariffs.
While federal bonds remain a draw for non-residents, fading confidence in Canadian stocks could present challenges for domestic markets in the months ahead.