Statistics Canada reported that foreign investors increased their holdings of Canadian equities by $4 billion in June, the largest monthly net inflow in a year.

The vast majority of this came in two public offerings in the U.S. market and the conversion of a bond issue to equity, which BMO Nesbitt Burns economists notes were deals involving Nortel, Thomson, and Magna, respectively.

CIBC and BMO agree that the June purchase of Canadian securities helped the dollar. “Modest net portfolio inflows in recent reports have undone some of the sizeable net outflow witnessed earlier in the year, and help explain the strengthening in the Canadian dollar observed during May/June,” says CIBC.

However, even with the monthly inflow, BMO says that net foreign purchases
of Canadian equities were next to zero in the first half of the year “leaving the $63 billion inflow from 1998 to 2000 a distant memory”.

Foreign investors reduced their holdings of Canadian bonds in June – the first time in five months. “The $1.5 billion reduction was due to near-record retirements of $7.0 billion, two thirds of which were tied to provincial governments and their enterprises. Net holdings of Canadian new bond issues rose a hearty $6.6 billion, paced by rising corporate and federal enterprise debt,” says CIBC.

“This abruptly ended a four-month string of solid inflows, and leaves
foreign buying of Canadian bonds well below last year’s robust pace so far
in 2002,” says CIBC.