Foreign investors continued to buy Canadian bonds in May, but they also picked up some stocks, Statistics Canada reported Thursday.

Foreign investors added a further $4.7 billion to their holdings of Canadian securities in May, a fourth straight month of large investment.

They invested in both bonds and equities, marking the first significant acquisition of equities in 2003. Meanwhile, Canadian investors resumed their purchases of foreign equities after a five-month absence.

In total, foreign investors bought $4.7 billion worth of Canadian securities in the month. About $3.4 billion went into bonds, and another $2.2 billion flowed into Canadian stocks. Almost $1 billion came out of money market paper. BMO Nesbitt Burns says “Since February, foreign investors have purchased almost $20 billion of Canadian bonds, and they have not been shy on the currency front with 70% of the inflow going toward C$-denominated bonds.”

CIBC World Markets reports that federal and provincial government issues were the primary target of foreign investors. “Corporate issues saw relatively muted interest in May, although they account for about a quarter of net foreign bond purchases so far this year,” it notes.

And, RBC Financial says that the bond buying is likely to continue. “Even though the Bank of Canada cut their policy rate earlier this week, the differential in short-term spreads remains generously in favour of Canada. So even though the Canadian dollar has come under some bearish sentiment of late, interest rates still remain quite supportive for the dollar over the months ahead. We continue to look for the dollar to reach US75.2¢ U.S. by year’s end.”

Nesbitt suggests that the equity buying came due to strong market performance, “With the turnaround in stock markets and the strength of the Canadian dollar, Canadian equity market returns have been at the head of the class, drawing the attention of foreign investors.”

CIBC says, “For their part, Canadians increased their portfolio of foreign securities by a net $1.4 billion in May. The balance of investment tilted back in favour of stocks versus bonds, although on a year-to-date basis, foreign equities continue to see net disinvestment.”

“With foreigners having taken such a keen interest in Canadian portfolio securities, May saw a net portfolio inflow of $3.3 billion. After four months of heavy net inflows, the year-to-date tally stands at an impressive $14.5 billion,” says CIBC. “Through May, net inflows were running at a pace that, if maintained, would produce the largest full year inflow in a decade—and goes a long way towards explaining the loonie’s strength this year.”