Domestic investors put a record sum of money into foreign securities in December like a struggling economy and crumbling stock market in your own home sent Canadian cash abroad.
Statistics Canada said Wednesday that domestic investors scooped up $17.4 billion in foreign securities for the 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 the steady downward march from the loonie.
Foreign investors sold off $1.4 billion in Canadian securities, led by divestitures in federal government bonds. For that fourth quarter as a whole, Canada saw an internet outflow of $16.5 billion in funds in the economy.
“Data for December showed Canadians putting another mountain of capital to operate outside the country,” said Warren Lovely, head of public sector research and strategy at National Bank of Canada. “Canadian investors have never before directed because their investment to foreign markets as they did within the final quarter of 2015.”
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The flow shows that Canadian investors are increasingly concerned about the prospect for growth in the country, as the S&P/TSX Composite once more fell into a bear market earlier this year and expectations remain high that the Bank of Canada will once more cut interest rates.
David Tulk, head of global macro strategies at TD Securities, notes that Canadian purchasing of foreign securities makes sense as domestic investors see few opportunities at home amid a slowing economy, while a deteriorating exchange rate causes it to be more appealing for investors to dump the loonie.
“The composition of investment was split reasonably evenly between equities and fixed income and it is justified by both the movement in the exchange rate as well as 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 in the fourth quarter, which saw another steep decline for the currency in comparison to the U.S. dollar.
But while Canadian investors are rushing to sell domestic securities, a few of the data shows that foreign investor curiosity about Canada is not necessarily over.
Tulk noted that December divestitures were a well-recognized theme for foreign investors as they close their year-end positions. He adds that most of the recent outflows from Canadian assets can be blamed totally on domestic investors, not waning foreign demand.
“On balance, the divestment noted in 2015 is smaller than took place years past and offers a counterpoint towards the impression that foreign investors have abandoned the Canadian market amid the collapse in commodity prices,” he said.
Non-resident investors bought $2.7 billion of Canadian money market products, with strong acquisitions in provincial and company paper. They also added $2.6 billion in stocks for that month, even while Canadian stock values fell 3.4 percent for that month.
Charles St-Arnaud, economist with Nomura Securities, said inside a note that there are 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 an archive number of Canadian bonds, that they suggests might have to do with foreign currency intervention by a number of central banks, including the People’s Bank of China, recently.
St-Arnaud adds that most of the inflows into Canadian bonds in recent months were limited to bonds issued in currencies other than the Canadian or U.S. dollar. He expects the recent weak demand to continue within the coming months.
“With oil prices remaining under pressure and CAD depreciating again, flows will probably remain weak in coming months,” he said.