Morning Market Brief: November 21, 2023

Foreigners taking money out of Canadian securities

Foreign investors continued to pull money out of Canada over September, with the outflows concentrated in relatively safer fixed-income investments. Conversely, foreign investors had net purchases of Canadian equities over the month.?

• Statistics Canada (StatsCan) reported foreign investors reduced their investments in Canadian securities by $15.1 billion in September. The outflow of investment capital was concentrated in Canadian fixed-income securities, many of which were retired during the month.
• Investor appetite for Canadian equity securities remained high. StatsCan also reported that Canadian equities saw net inflows of $1.6 billion over the month. This was the first month of inflows into Canadian equities in nine months.
• Foreign investment into money market paper was also positive, given higher interest rates and the relative safety of the Canadian government and corporations.
• At the same time, Canadian investors purchased $11.6 billion of foreign securities in September. As a result, there were net investment outflows of $26.7 billion.
• Canada’s economy has weakened in recent quarters amid tight financial conditions. However, Canada remains a relatively safe place to invest.

Despite the outflows, investors still showed confidence in the outlook for Canada’s economy by investing in riskier equity investments. Canada has many strong companies that might be poised to perform well as the economy emerges from its recent struggles. In particular, the Canadian stock market has relatively high exposure to cyclical stocks, which tend to outperform defensive stocks in periods of strong economic growth. These include stocks in the consumer discretionary, real estate and financials sectors, among other sectors and industries.

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