Foreign investors were big buyers of Canadian securities in November, picking up $5.6 billion worth during the month — the largest investment since March of last year, according to Statistics Canada.

Statscan says most of the buying was in corporate bonds. Conversely, Canadians bought about $1.3 billion of foreign securities, mostly stocks.

BMO Nesbitt Burns Inc. chief economist Sherry Cooper notes that Canadian dollar-denominated bonds drew foreign investors’ interest for the first time since May 2003, although more than 60% of the net investment in Canadian bonds was in foreign currency issues. “Corporate bonds were the primary attraction with foreign investors continuing to seek higher yielding opportunities,” Cooper says.

There wasn’t much foreign buying of Canadian stocks. “According to Statistics Canada, the $2.0 billion in Canadian stocks was primarily M&A related, as a Canadian firm raised money to fund a foreign takeover,” Cooper says. “There was little foreign interest in outstanding stocks, although 2003 will be the best year in three for foreign investment in Canadian stocks.”

But RBC Financial Group cautioned about inferring too much from these numbers. “Before jumping to conclusions about what this means by way of a broad vote of confidence in the Canadian dollar and domestic financial markets two important details must be considered,” says Derek Holt, assistant chief economist.

“First, almost all of an estimated $2 billion in foreign acquisitions of Canadian stocks related to a single issuance transaction by a Canadian company involved in acquiring a foreign company. Second, about half of the foreign acquisitions of Canadian bonds took the form of investment in bonds issued by Canadian companies and governments in the U.S. market and denominated in U.S. dollars. Furthermore, foreigners dumped almost $300 million on net in Canadian money market instruments that are higher yielding than U.S. money markets. The remaining roughly 30% of net foreign purchases of Canadian securities were concentrated in outstanding bond issues.”

Cooper says that with only $9.2 billion invested in foreign markets in 2003 year-to-date vs foreign investment of $15.3 billion in Canadian securities, “Canada was set to experience a net inflow of investment in securities for the first time since 1998. As well, Canadians likely also posted the smallest net investment in foreign stocks since the Asian financial crisis of 1997.”

Nevertheless, says RBC, “this report is largely a rear-view mirror upon how flows of funds influenced Canadian dollar movements and financial asset prices back in November and is therefore of relatively little significance to financial markets.”