The short break where foreigners
decided that Canada was not worth the effort was, it appears a one month
phenomenon. They’re back and the figure
is $11.3 billion for July, mostly in sovereign short term instruments. My guess is that foreign investors still see
a strong likelihood that Canadian interest will rise (they will not) based on
Canada’s overall economics health (forgetting Canada’s Q2/2011 negative GDP
numbers). Over the past 12 months,
foreigners have purchase nearly $120 billion in Canadian assets, a similar
level to what was seen in 2010 – and about 8% of Canada GDP.
(Source: StatsCan)
At the same time, Canadians are
reducing their foreign bond holdings – not entirely surprising considering that
when Canadian invest “abroad” we mean U.S.A. and the 10 year T-Bond are now
down to 2% -- taking in consideration the movement in the CAD and the weak
yield, there’s not much incentive for Canadians to hold foreign bonds, moreover
Canadian are very concerned about foreign financial institutions – sub debt for
American banks pays nearly 400 bps than the equivalent instrument for a
Canadian bank…
(Source: StatsCan)
Again 8% of GDP is a substantial
amount of money, what must be worrying to the BoC is that most of these funds
are in self liquidating short term instruments.
Not entirely certain what to make of this. It could be a fear of capital control (or
some other action by the Canadian authorities) to slow down the flow of hot money.
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