Foreigners added $2.2 billion worth of Canadian stocks to their portfolios in December and Canadians added a further $2.7 billion to their holdings of foreign securities, Statistics Canada said today.

“Trading volume in Canadian stocks with foreign investors was up as well, climbing to $45.6 billion in December, the highest turnover since the $55 billion in March 2001, ” the agency said in a news release.

“American investors did the bulk of the buying in December, as they have for all of 2003.”

Foreigners reduced their holdings of Canadian bonds by $1.6 billion in December after accumulating $5.3 billion worth in October and November.

Of the $2.7 billion that Canadians invested in December, fully $2.3 billion went into bonds, the agency said.

BMO Nesbitt Burns says this marks a reversal from November, when Canadians were drawn largely to foreign equities. “Last year’s $12.5 billion was the smallest net investment abroad by Canadians since 1997, and largely reflects the surge in the Canadian dollar that eroded the returns to offshore investments. The $4.3 billion in foreign stocks purchased by Canadians was the smallest net investment outflow since 1990,” Nesbitt reports.

For all of 2003, “the $12.5 billion investment in foreign securities . . . was directed two-thirds to foreign bonds with one-third to foreign stocks. This investment was half the $25 billion invested in foreign securities in 2002, of which 75% went to stocks and 25% to bonds,” said Statistics Canada.

“On balance, foreign investors may have become somewhat weary of the Canadian bond market in recent months after strong spread and currency performances through the spring and summer. However, we expect that foreign capital flows into Canada will pick up this year given that more outperformance in Canadian bonds is expected,” says RBC Financial.

Statistics Canada said “foreign investors reduced their holdings of Canadian dollar-denominated bonds in December but bought issues denominated in foreign currencies.

“For 2003, they sold $5.1 billion of Canadian dollar-denominated bonds, but increased their holdings of US dollar-denominated bonds by $7.5 billion and those of bonds denominated in other foreign currencies by $4.3 billion.

“The total foreign investment of $6.7 billion in Canadian bonds came 60% from Asian investors, with the remaining 40% coming from American investors.

“Foreign holdings of Canadian money market paper fell by $500 million in December, following a similarly small reduction in November,” the agency said.

“Foreign investors have reduced their holdings of Canadian short-term paper in nine of 12 months of 2003, for a total reduction over the year of $4.4 billion.

“This more than reversed the $3.8 billion they accumulated in 2002.”