Key trends combine to produce net inflow of funds in Canada in April

By James Langton

Canada enjoyed a massive net inflow in April resulting from continued foreign buying of Canadian securities and domestic selling of foreign holdings, according to data released by Statistics Canada on Friday.

Notably, foreign investors continued buying Canadian securities in April, running the tally for net foreign inflows to 21 consecutive months, according to a National Bank Financial Ltd. (NBF) report on the data. Over that period, foreign investors have acquired $270 billion worth of Canadian securities in total.

At the same time, Canadians were selling foreign securities in April, particularly stocks and U.S. treasuries, the NBF report notes. These two trends combined produced a net portfolio inflow of $20.5 billion in April alone. Through the first four months of the year, the net inflow totals almost $50 billion.

“This isn’t necessarily the most stable way to finance a current account deficit, but hey, you’ve got to attract capital in one form or another, and [foreign direct investment] inflows have generally left something to be desired,” the NBF report says.

In April, the foreign buying featured investors acquiring around $13 billion in Canadian corporate and government bonds. Most of that total includes bonds denominated in Canadian dollars (C$), NBF says.

“While the increased appetite for C$-denominated bonds recorded in April is encouraging, we’ll need to monitor this in light of re-priced monetary policy expectations,” the NBF report says, noting that there was heavy foreign selling this week amid hints that the Bank of Canada may soon begin to raise interest rates. “Notwithstanding this week’s evident foreign selling (on a more hawkish BoC view), as Canadian yields gradually set higher (getting cheaper on both an absolute and relative basis), one would expect foreign interest in our domestic bonds to reignite.”