Domestic investors place a record amount of cash into foreign securities in December as a struggling economy and crumbling stock market at home sent Canadian cash abroad.
Statistics Canada said Wednesday that domestic investors scooped up $17.4 billion in foreign securities for that month, breaking November’s record of $16.5 billion. The buying may come as foreign investors reduced their holdings of Canadian securities, amid a bear market in Canadian stocks and also the steady downward march from the loonie.
Foreign investors sold off $1.4 billion in Canadian securities, led by divestitures in authorities bonds. For that fourth quarter as a whole, Canada saw an internet outflow of $16.5 billion in funds from the economy.
“Data for December showed Canadians putting another mountain of capital to operate away from country,” said Warren Lovely, head of public sector research and strategy at National Bank of Canada. “Canadian investors have never before directed as much of their investment to foreign markets as they did within the final quarter of 2015.”
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The flow suggests that Canadian investors are increasingly concerned about the chance for growth in the nation, because the S&P/TSX Composite once again fell into a bear market earlier this month and expectations remain high the Bank of Canada will once more cut interest rates.
David Tulk, head of worldwide macro strategies at TD Securities, notes that Canadian purchasing of foreign securities is sensible as domestic investors see few opportunities at home amid a slowing economy, while a deteriorating exchange rate makes it more attractive for investors to dump the loonie.
“The composition of investment was split reasonably evenly between equities and glued income and it is justified by both the movement within the exchange rate and in the relative economic performance of Canada versus its international peers,” he explained in a note to clients Wednesday.
The stampede out of Canadian securities added to pressure around the loonie within the fourth quarter, which saw another steep decline for that currency versus the U.S. dollar.
But while Canadian investors are rushing to sell domestic securities, a few of the data suggests that foreign investor interest in Canada isn’t necessarily over.
Tulk noted that December divestitures were a well-recognized theme for foreign investors because they close their year-end positions. He adds that most of the recent outflows from Canadian assets can be blamed mostly on domestic investors, not waning foreign demand.
“On balance, the divestment noted in 2015 is smaller than occurred in years past and provides a counterpoint to the impression that foreign investors have abandoned the Canadian market amid the collapse in commodity prices,” he explained.
Non-resident investors bought $2.7 billion of Canadian money market products, with strong acquisitions in provincial and corporate paper. Additionally they added $2.6 billion in stocks for the month, even as Canadian stock values fell 3.4 per cent for the month.
Charles St-Arnaud, economist with Nomura Securities, said in a note that you will find signs that weak foreign interest in securities is more than just a seasonal trend, as demand from customers has been weak since May (if the strong inflows of October are excluded).
He notes that emerging market countries have sold a record quantity of Canadian bonds, that they suggests may have to use foreign currency intervention by a number of central banks, such as the People’s Bank of China, in recent months.
St-Arnaud adds that many from the inflows into Canadian bonds recently were limited to bonds issued in currencies apart from the Canadian or U.S. dollar. He expects the recent weak demand to carry on within the coming months.
“With oil prices remaining under pressure and CAD depreciating again, flows will probably remain weak in coming months,” he explained.
jshmuel@nationalpost.com
