Canadians bought foreign securities in June and the first half of this year at a much faster rate than in 2004 following a government decision to scrap foreign-content limits on retirement savings plans. Statistics Canada said on Thursday that Canadians bought a net C$16.0 billion ($13.1 billion) in foreign securities in the first half of the year.
That dwarfs the C$7.1 billion figure for the same period in 2004 and comes close to matching the C$18.5 billion registered for all of 2004. The second-quarter figure of C$9.1 billion was the highest in more than three years.
But the foreign-buying boom fell short of the massive outflows of the tech-bubble period of 1999-2001. "I think there was quite a lot of pent-up demand for foreign securities," Doug Porter, chief economist at brokerage BMO Nesbitt Burns, told Reuters.
He said that before the government announced in its February budget that it would eliminate the 30 percent limit on foreign content in tax-deferred retirement savings plans, people could have bought clone funds that matched foreign investments. But investors seemed to have been drawn to making direct purchases in light of the new rule, he added.
It technically took effect only at the end of June, once a budget implementation bill was approved, but Ottawa had effectively given investors the go-ahead in February.
Some of the increase in investment may have been due to other factors. Higher yields in the United States than in Canada contributed to a net C$10.3 billion in Canadian purchases of foreign bonds in the first half of the year, nearly double the C$5.7 billion registered in first half of 2004.
Purchases of US securities, favoured over other countries, proceeded despite the risk of further depreciation of the US dollar against Canada's currency.
"There are probably as many (investors) who believe that this is a buying opportunity," Porter said. "The big run-up in the Canadian dollar in the last couple of years has basically put US assets on sale. They can now get them 20 or 30 percent cheaper than they could a few years ago." For the month of June alone, Canadians bought C$5.4 billion in foreign securities after May's C$373 million.
Foreigners sold C$2.1 billion of Canadian securities, following nine months of continuous buying. In both cases, US take-overs of Canadian companies played a small part in the capital flows.