Statistics Canada reported that foreigners bought $5.5 billion of Canadian securities in January.

Foreign investors bought $5.5 billion of Canadian securities in January, Statistic Canada said today.

Meanwhile, Canadian investors reduced their holdings of foreign stocks after three months of acquisitions, but continued to buy foreign bonds.S

StatsCan said foreign investors invested more in bonds than in stocks, while continuing to reduce their holdings of money market paper.

BMO Nesbitt Burns says that this was the fifth straight month of net inflows and the third largest in the past two years. “Although the majority of net new funds went directly into bonds, stocks also took in new money for the tenth month in a row, helping the TSX to a flying start in 2004. The large net inflows into Canadian stocks and bonds also helped send the loonie to a decade-high in January,” it says.

“Foreign investors reduced their holdings of money market instruments as short-term interest rate spreads narrowed in the month but added to their holdings of Canadian bonds and stocks,” comments RBC Financial. “On the flip side, Canadians investors reduced foreign investment holdings in January after increasing foreign holding of stocks and bonds in the previous three months, although the $855 million reduction in holdings of foreign stocks pales in comparison to the $7 billion of foreign stocks purchased in the previous eight months.”

Nesbitt reports that federal government bonds were the main draw for overseas investors, as the $4.5 billion inflow was the biggest since the fall of 2002. “In contrast, foreign investors dumped their holdings of provincial and municipal government bonds for the second month in a row,” it notes. “Net inflows from the U.S. into Government of Canada bonds came in just shy of $5 billion in January, the heftiest purchase in a year. The U.K. was also an active buyer, adding a net $839 million in the month.”