RBC F/X research on bond and equity flows

With the Canadian dollar breaking 90 cents USD, here are some insights from the RBC Capital Markets currency strategist. As an aside, investors need to think about the impact the ongoing strength of the dollar will have on the first quarter financial results of Canadian tech firms, particularly those that have the majority of their staff on the this side of the border.

“Canadian Global Portfolio Diversification Continues

FX Bottom Line: Canadian bonds were in great demand in March. Foreign investors purchased C$9.1bn of Canadian bonds, and $4.6bn of Canadian securities overall. However, portfolio outflows again dominated, as Canadian investors snapped up a record C$7.9bn of foreign bonds and $11.0bn of foreign securities overall.

Canadians purchased $3.1bn of US bonds, primarily US corporate bonds, and a record $4.8bn of non-US bonds, again emphasizing that CAD crosses are becoming increasingly important to Canadian portfolio managers.

Monthly Flows

Foreigners were net buyers of C$9.1bn of Canadian corporate and government bonds in March, with US investors accounting for 60% of the total. CAD-denominated bond purchases, primarily CGBs, totalled $4.2bn, a five-month high. USD-denominated Canadian corporate new issues of $4.6bn replaced maturing issues in foreign portfolios. Canadians snapped up a record $8.0bn of foreign bonds, mostly US corporate bonds and Maple bonds issued by European institutions. Canadians purchased $3.6bn of US corporate bonds in March bringing the YTD total to near $8.0bn reflecting an increased appetite for non-Treasury US bonds. Two-thirds of record $4.8bn of non-US bonds purchased were Maple bonds, reflecting the ongoing strong demand among Canadian investors.

Foreigners were net sellers of $4.2bn of Canadian equities in March, almost fully unwinding the $5.0bn investment in February. While US investors bought in February, Europeans sold a record $3.3bn in March. Canadians were net purchasers of C$2.9bn of foreign equities, including a record $9.8bn in purchases of non-major OECD and emerging market stocks, and selling a record $11.0bn of UK equities. This continues the trend of global diversification of equity investments by Canadian investors.

Trend Flows (12-month sum)

Overall net outflows totalled $57.8bn (12 month sum), closing in on the record $60.3bn in April 2001. Canadian investors have purchased $84.6bn of foreign securities, about 60% bonds, while foreign investors have purchased $26.8bn of Canadian securities, the vast majority in bonds. Foreign investors have purchased a paltry $2.2bn of Canadian stocks over the past 12 months.”

MRM