Foreign investors cool Canadian securities purchases

Foreign investors continued adding Canadian securities to their portfolios in May, although the buying eased from the record highs of April, according to new data from Statistics Canada.

Driven by debt securities, foreign investors added $20.9 billion worth of Canadian securities in May, down from April’s record $40.4 billion, the statistics agency said in a report Wednesday.

“The activity in May was mainly in Canadian government bonds and private corporate paper, and it was moderated by a divestment in Canadian equity securities,” StatsCan said.

Specifically, foreign investors added $19.6 billion worth of Canadian bonds in May — including $12.9 billion in federal debt and $5.8 billion of provincial government bonds.

Through the first five months of the year, foreign investors have added $110 billion of Canadian bonds, up from $57.6 billion for the same period in 2023, StatsCan reported.

Additionally, investors acquired $10.9 billion of Canadian money market paper, primarily instruments issued by the banks.

The strong flows into fixed-income securities were tempered by investors selling $9.5 billion worth of Canadian equities in May. StatsCan said this marked the largest monthly divestment since June 2022.

The divestment activity in May, “was driven by redemptions of Canadian portfolio shares resulting from merger and acquisition activities and, to a lesser extent, by sales on the secondary market,” the agency reported.

Despite the equity divestment, foreign investor flows continued to outpace Canadian investors’ offshore activity, as domestic investors added just $3.9 billion worth of foreign securities in the month. This activity was also focused on bond buying.

Canadian investors added $3.1 billion in foreign debt in May, which marked a slowdown in bond buying.

“Investment in U.S. government bonds was down from $7.1 billion in April to $0.8 billion in May, while investment in non-U.S. foreign bonds was on par with the level recorded in April,” StatsCan said.

Instead, Canadian investors turned to U.S. stocks in May.

“The activity in May was led by a $2.6 billion purchase of U.S. shares, following a $9.7 billion sale in April,” StatsCan said.

Overall, investors acquired $0.7 billion worth of foreign equities in the month, but this marked a sharp turnaround from April when investors dumped $10.9 billion of foreign equities.

Through the first five months of the year, Canadian investors have added $12.7 billion worth of U.S. stocks, compared with a $16.2 billion divestment for the same period in 2023.