The Composite Index gained 1.2% in April after a 1.3% increase in March, the best consecutive advances in nearly 20 years.

As well, Statistics Canada also reported that foreign investors acquired $3.7 billion of Canadian debt instruments in March, while reducing their holdings of Canadian stocks by a similar amount

RBC notes that Statistics Canada’s leading economic indicator increased strongly in April and March. ” Equally encouraging is the fact that nine of 10 components rose while one remained unchanged, and that the sources of strength are beginning to spread outside household demand and into manufacturing production,” it says.

“The strength in the leading indicator is consistent with our view that the North American recovery has legs. After a blowout first quarter (where GDP likely recorded a 5% annualized gain), growth is expected to average roughly 3+% over the balance of the year,” says CIBC.

“Another explosive gain in leading indicator won’t add much to the market’s general perception that the Canadian economy is on the mend, keeping the Bank of Canada in tightening mode for the foreseeable future.”

As for foreign investment, BMO Nesbitt Burns notes that, “Net portfolio investment inflows to Canada all but dried up in the first quarter, as moderate purchases of fixed-income product were largely offset by net foreign selling of Canadian equities. In the first three months of the year, non-resident investors lightened their holdings of Canadian stocks by $3.2 billion, heading for the first full-year decline since 1995. In marked contrast, foreign investors continue to nibble on Canadian bonds and money market paper, no doubt attracted by the gradual widening in Canadian/U.S. spreads.”

BMO says that the bulk of bond buying has been in US$-denominated corporate debt. “However, European investors are reportedly starting to buy Canadian short-term paper, a product that has seen massive net foreign selling in recent years.”

“Foreign investor interest for Canadian portfolio assets has been hard to maintain so far this year,” agrees CIBC World Markets. CIBC notes that March saw heavy foreign selling of Canadian stocks, although some of that reflected the acquisition by US-based Duke Energy of Westcoast. It also notes that March saw Canadians add $2.1 billion of foreign assets to their investment portfolios, bringing the year-to-date total to $11.7 billion — not far from the prior year’s pace. However, BMO suggests that a continued recovery in the loonie, “may dampen Canadian investor enthusiasm for global equities”.