A strong inflow of funds boosts the Canadian economy as foreign investors increase exposure to Canadian securities.
Meanwhile, Canadian investors showed a tempered appetite for foreign securities, with acquisitions totaling $4.1 billion—a sharp decline from the $12.3 billion recorded in August. This divergence between foreign and domestic investment activity resulted in a net inflow of $25.2 billion to the Canadian economy in September, contributing to a total inflow of $30.6 billion for the third quarter.
Foreign investors demonstrated a renewed interest in Canadian securities, especially debt instruments. September’s $14.7 billion investment in Canadian debt securities primarily targeted bonds, with year-to-date acquisitions reaching an impressive $172.0 billion—nearly triple the $61.9 billion recorded over the same period in 2023.
A significant portion of September’s activity focused on private corporate bonds, which accounted for $10.1 billion of the total. These investments were driven by financial institutions issuing new bonds, many denominated in foreign currencies. Federal government bonds, often a staple of foreign portfolios, saw a modest $2.7 billion inflow—the lowest monthly total for this category in 2024.
The Bank of Canada’s decision to lower its policy rate to 4.25% from 4.5% in September likely supported increased investor activity. The cumulative 75 basis points reduction in 2024 has further solidified Canada’s appeal in global fixed-income markets.
Foreign acquisitions of Canadian equities surged to $14.6 billion in September, marking the highest monthly total since December 2021. This comes as a sharp turnaround from August, which saw a significant divestment of $11.9 billion. The energy and mining sectors were the primary beneficiaries of this renewed interest, reflecting global demand for natural resources and commodities.
Year-to-date figures show a net divestment of $9.7 billion in Canadian equities by foreign investors, a marked improvement compared to the $40.7 billion divestment over the same period in 2023. Canadian share prices, as measured by the S&P/TSX Composite Index, rose by 2.8% in September, bolstering investor confidence.
On the domestic front, Canadian investors were cautious about foreign securities, acquiring just $4.1 billion in September. This slowdown was particularly evident in U.S. equity markets, where Canadian investors reduced their holdings by $1.2 billion. The decline follows a sharp $12.7 billion investment in August, underscoring the volatility of cross-border investment flows.
Conversely, Canadian acquisitions of foreign debt securities rose by $4.4 billion, led by a $6.6 billion investment in bonds. U.S. government bonds attracted $3.5 billion in Canadian funds, reversing a $3.9 billion divestment from August. The S&P 500 Index’s 2.0% gain in September played a role in shaping these investment trends, highlighting the interplay between market performance and investor behavior.
The September figures underscore Canada’s growing attractiveness to foreign investors, driven by a stable economy, favorable interest rates, and strong equity performance. The net inflow of funds substantially boosts the Canadian economy, with implications for both financial stability and growth potential.
However, the contrasting slowdown in Canadian investments abroad reflects cautious sentiment among domestic investors, particularly in fluctuating U.S. equity markets. Analysts suggest that ongoing shifts in interest rates and market dynamics will continue to influence international investment patterns in the months ahead.