Foreign investors like Canadian bonds, but are ignoring our stocks, says BMO Nesbitt Burns Inc.

BMO observes that foreign investors added $3.4 billion worth of Canadian securities in May, a slower pace than the prior two months. “So far this year, the inflow has been impressive, nearly matching the total for all of 2000.”

The flow has been into Canadian bonds for the most part. Foreign investors have packed $4.7 billion of Canadian bonds into their portfolios so far, “as this year’s wider spreads have boosted the attractiveness of domestic fixed-income product,” says BMO. “This is a big turnaround from last year, when foreign investors were net sellers of Canadian bonds for the first time in over forty years.”

BMO notes that corporate bonds have enjoyed much of this year’s inflow. In the first five months of 2001, net purchases of these instruments came in at $18.3 billion, the highest in over a decade.

BMO concludes, “Foreign investors are buying Canadian bonds again, but not Canadian stocks. But, Canadians are still big buyers of global equities, keeping the Canadian dollar under downward pressure.”