Foreigners shed Cdn bonds in Nov., Canadians grab world stocks

Foreigners dumped a ton of Canada's bonds while Canadians bought more foreign stocks in November, according to statistics released Monday.

Non-Canadians, burned by debt instruments during the asset-backed commercial paper crisis, sold $5.4 billion of their Canadian bond holdings, the biggest monthly cash-out since December 2005.

But they were not buying Canadian stocks to make up the difference, cutting their equity holdings by $3 billion in the same month, Statistics Canada said.

Instead, foreigners snapped up $4.1 billion in short-term money market instruments, a sign that non-Canadians are not interesting in locking up Canadian-bound money in long-term debt or equity in these turbulent economic times.

"Most of the foreign investment was in federal government paper, equally split between U.S. and Canadian dollar-denominated instruments," said Canada's statistical agency.

Security more valued

Foreign purchases of government money market instruments is a further sign that non-Canadians value security over risky bets these days, willing to trade a lower rate of return for a better guarantee of getting repaid.

Statistics Canada pointed out that the country's main stock indicator — the Toronto Stock Exchange's S&P/TSX index — has tumbled 33 per cent since the end of August and the subsequent start of the global credit crunch.

Canadians appeared more interested in rehabilitating their investment portfolios in November.

Domestic investors cut their holdings of foreign debt instruments, shedding $1.7 billion worth of bonds and $2 billion in money market instruments during the month, Statistics Canada said.

That reduction might not be a surprise as minimal interest rates on short-term debt — combined with a reluctance to tie up cash in such an unsettled economic situation, especially in the United States — conspired against the purchase of bonds and money market funds.

"This marked the sixth consecutive monthly divestment in foreign debt instruments. Investors have removed $14.8 billion of foreign bonds from their holdings over the last six months," Statistics Canada said.

But Canadians bucked the trend in foreign equity markets.

They bought $1 billion more in foreign equities in November, compared with October, even though New York's Dow Jones Industrial Index is down 37 per cent from its 52-week high.