Canadian Investments Remain Popular Internationally

By David Parkinson

Our lakes and rivers may be frozen at this time of year, but the money is flowing quite nicely in Canada, thank you very much.

Just days after the Investment Funds Institute of Canada reported that Canadian mutual funds enjoyed another month of positive net sales in December, Statistics Canada released data showing another strong surge of inflows of foreign money into Canadian investment markets in November.

Statscan said foreigners snapped up $10.5 billion of Canadian securities in the month - almost double the October total. It was the third time in the past seven months that net foreign purchases topped $10 billion.

Meanwhile, Canadians bought a modest $2.4 billion of foreign securities in November, although that did reverse three straight months of net declines.

Unlike in September, when the huge $13,4 billion of net foreign purchases in Canada were tilted heavily toward Canadian equities, the November purchases were entirely centred in bonds - $12.9 billion in net purchases. Foreigners actually sold a modest $464 million of Canadian equities in the month.

The data both reflect and support the strong Canadian dollar.

Certainly, the rising currency, wrapped up in bullish prospects for commodities and hopes that the Bank of Canada would be among the early interest-rate hikers in 2010, have attracted foreign money to the Canadian bond market. But those inflows also add some fundamental heft to the dollar's rally - there is irrefutable evidence of strong, sustained foreign demand for loonies, in the form of Canadian debt instruments. It's more than just speculative smoke and mirrors. That helps underpin the currency's continued strength.

However, it's worth noting that a big chunk of the November purchases weren't directly supportive of the domestic currency. Statscan noted that the bulk of foreigners' $7.2 billion in net purchases of Canadian corporate debt came in new U.S.-dollar-denominated issues from Canadian companies.

For the first 11 months of 2009, foreigners bought $73 billion of Canadian bonds - more than triple the amount of the same period in 2008.