Foreign investors sold a substantial $3.7 billion worth of Canadian stocks in July, as they reduced their holdings across a wide range of equities. Canadian investment in foreign securities continued at a considerably slower pace.

The July selloff was the first net outflow since September 2001. BMO Nesbitt Burns notes, “This slashed the year-to-date net inflow almost in half to $4.3 billion and was a big factor behind the loonie’s dive in July.” Nesbitt notes that stocks were responsible for $3.7 billion of the outflow, almost undoing June’s surge. “Most of the latest outflow came from the secondary market as the TSX hit a three-year low in July, falling 7.6% during the month. The TSX also tumbled in June but there were major new issues sold abroad to boost that month’s figure,” says BMO

CIBC World Markets says that the delisting of Canadian stocks from the S&P 500 index also saw foreign holders of Canadian stocks rushing for the exits in July.

CIBC points out that foreign investors also reduced their net holdings of Canadian bonds (-$0.5 billion). “Buying of outstanding federal issues was the strongest since last summer, but that was offset by another wave of provincial retirements and a general cooling in corporate new issues—the latter standing at their lowest level in five months, as deteriorating credit quality has seen many companies delay new offerings.”

Meanwhile, Canadians added $0.8 billion of foreign securities in July. The increase was split between stocks and bonds.

RBC Financial Group economists say, “The details of this report may be construed as an indication of a lack willingness by Canadian corporations to access capital markets for financing. Furthermore, in the corporate bond market, new issues were at a five-month low. Falling equity prices and high credit spreads despite low all-in issuing costs might be keeping corporates on the sidelines.”

However, RBC observes that other economic indicators suggest that companies have started to invest but are relying on cash flow to finance capital expenditures and not capital markets. “Canadian corporate profits, as measured by Statistics Canada, are up more than 20% year-to-date. It’s not that the costs for fixed income financing are prohibitive, it’s simply that the need has not materialized just yet.”