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Canada’s March TIC report


March 2011 has the distinction of being the second worse month for capital inflow, with “only $6.3 billion” in new money coming to Canada.  February was the worse with slightly less then $5 billion.  One thing for sure is that the all time high of May 2010 ($22 billion) is in no danger of being upstaged.  Interestingly, whereas in February there was net bond redemption and the story was all equity all the time, the March number show a very balance investment strategy between bonds and equity.  

(Source: StatsCan)

The reality is that for Canada $6 billion per month (equal to 4% of GDP on annualized basis) of inflow is very respectable and can easily be absorbed by our economy.  The total inflow last year was slight more than 8% of GDP, which is a fair chunk of change, and although Canada is reluctant to consider capital control, the risk is always there that the “hot money” will cause problem to the economy.  Thankfully, the commodity “rally”: has ebbed a little, oil prices are closer to their non-crisis level (they could still fall to around $80/85 zone without breaking the overall sentiment that the demand/supply equation is tight).  

Back to our Canadian story, Canadian investors have reducing their holdings of foreign (read American) bonds, but continue to be attracted to foreign equity markets (it’s a diversification issue).  Over the past 2 years, bond investors have been crushed, both because M/T CAD bonds have higher coupon and because of the strengthening CAD.  Foreigners have been buying everything, from high price condo in Vancouver and Toronto, to Canadian equities and bonds (of all stripes – Feds/Provinces/Corporate).

Finally, SocGen has an interesting analysis as to what happened to China's US Treasury bond purchase.  There has been many commentary as to the disappearing presence of Chinese buyers at treasury auctions.  Well it turns out that the U.K. has become a HUGE buyer of US treasury -- could the UK be China's beard in buying US Treasury (is is simply a decision by the Chinese to operate out of a different market?




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