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Foreigners continue to buy Canada

According to StatsCan, foreign investors continue to buy Canadian securities. Non-residents added another $6.7-billion ($7.8 billion in bonds, -$1.1 billion in equities & others) to their holdings of Canadian securities in the month, all of which were bonds as they sold stocks and money-market paper.  Foreign investors have added Canadian bonds to their portfolios for 14 straight months, with acquisitions totaling $100.7-billion since January 2009.

Why are foreigners suddenly so enamored with Canada?   Several reason stick out, first the Canadian dollar is increasingly behaving like a petro-currency (see Mike Moffatt’s analysis), which shows the CAD’s correlation with the WTI (Oil) near 90%, what other “acceptable” currency has this kind of profile (ok the Ausi and Kiwi dollars)?  Secondly, (and I wont post it here again) Canada has a very enviable sovereign debt profile with all (Federal and provincial) governments looking to control deficits.    Finally, Canada’s central bank can worry about other things than the health of the country’s financial institutions, economic growth (which appears more secure every day), and employment (still a problem but going in what seems to be the right direction).  

 
Demand is finally growing, although  from a low base. 


Inflation is still perceived to be on track (although these are perceptions) to be within the 2.0% to 2.5% target band.


On April 12th, the Bank of Canada released its quarterly survey of Canadian businesses.  The result above shows that capacity utilization is still below potential, but getting closer (than in '90) to full capacity utilization, which illustrates that the 2008-09 recession saw some level of absolute capacity destruction (considering the unemployment is still around 8%) 

On Thursday the Bank of Canada will issue its latest “view and opinions” about the strength of the Canadian economy, several will be looking for a definite signal of tightening with rising interest rates – although it may be premature since a quarter of strong performance is not exactly that large en endorsement of The Recovery!  

So foreigners are attracted to Canada, in 2009 our banks were deemed the safest in the world (despite a number of naysayers) and weather the crisis with only liquidity requirements (when Lehman failed banks were unable to fund their activity at any price), this quantitative easing is largely terminated in Canada, and the BoC has returned its balance sheet to its pre-crisis size.

The final analysis as to why foreigners are investing so heavily in Canada seems to be that although things in Canada are OK (not great), they are far worse elsewhere!  maybe not the best reason to invest here, still not too bad...



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