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Canadians flock to foreign securities

TAVIA GRANT

Thursday, February 16, 2006

Canadians snapped up $42.2-billion in foreign securities last year, the most in five years, after the government lifted foreign-content limitations on retirement savings plans, Statistics Canada said Thursday.

More than half of that — a record $25.6-billion — went into foreign bonds. In 2004, Canadians bought $18.5-billion in securities.

The report showed interest in investing outside Canada surged last year. Buying was especially strong in Canadian dollar-denominated foreign bonds that were issued in the domestic market last year.

The surge in demand was largely “a reflection of the lifting of foreign content restrictions for registered retirement funds,” said Stewart Hall, market strategist at HSBC Securities (Canada) in a note to clients.

In December alone, Canadian investments abroad totalled $3.5-billion after a $2.3-billion investment in November. Canadians also continued to invest in foreign equities in December, Statscan said.

At the same time, foreign investment in Canada dwindled.

Last year, outside investment in Canadian bonds tumbled to $2.4-billion, little more than one-tenth of the value in 2004, the government agency said.

Statscan's David Filiplic gave two reasons for the exodus from Canadian bonds: an increase in net retirements at a time when new corporate issues were fairly meagre.

That trend continued in December, when foreign investments in Canadian securities sank by $4.2-billion in December as non-residents sold the most amount of Canadian bonds since August, 2003, Statscan said.

While overall investment tumbled, investors from Asia made their largest annual investment in Canadian bonds since the late 1980s, marking an important shift in interest, HSBC's Mr. Hall said.

Foreign investments in Canadian equities last year also declined, mostly because so many Canadian companies were swallowed by foreign companies, Mr. Filiplic said.