More money left Canada than foreign investors brought in but it’s not a red flag yet, says economist

Bank of Canada governor Tiff Macklem said this week that the economy is showing "some resilience" to U.S. tariffs. Canadian and American flags fly near the Ambassador Bridge at the Canada-USA border crossing in Windsor, Ont. on Saturday, March 21, 2020. THE CANADIAN PRESS/Rob Gurdebeke

Canadians moved a record amount of money on foreign assets in February, causing more money to leave the country than foreign investors brought in.

But it’s not a cause for concern yet, says one economist.

Canadian investment in foreign securities hit its highest level in nearly two years at $25.4 billion, according to Statistics Canada, significantly outweighing the $6.2 billion that foreign investors put into Canadian assets.

They spent a record $32.9 billion on foreign stocks, specifically large U.S. tech firms.

While it may appear concerning, the data isn’t all that bad, explains Pedro Antunes, chief economist at the Conference Board of Canada.

“I think we need to take it with a grain of salt,” says Antunes.

He says international tractional data can be extremely volatile, and the investments reflect Canadian investment portfolios rather than long term investments that drive Canada’s economic growth.

“Certainly the U.S. tech sector has been doing very well...but it’s hard to know what specifically happened in that one month.” says Antunes.

He stresses that this is a securities investment, not a greenfield investment, which would involve building new productive physical assets.

“And of course, when we buy foreign assets, that does bring a stream of income into the country,” says Antunes.

“I think all this suggests is that there was something more attractive for Canadian investors than perhaps what’s within Canadian markets at this point in time.”

There is still interest in Canadian bonds

The better gauge of economic stress is the bond market and the Canadian dollar, which seem to be holding up," says Antunes.

“We’re still able to sell our bonds,” he says.

“Bond yields are really what sets interest rates for Canadians. So this is where I’m a little comforted by the fact that there’s still inflows to purchase bonds in Canada.”

Foreign investment in Canadian securities slowed to $6.2 billion in February, a significant decrease from the $46.8 billion recorded in January, according to Statistics Canada.

While acquisitions of $22.6 billion in bonds continued, they were moderated by divestments of $9.2 billion in shares and $7.3 billion in money market instruments.

The time to worry would be if there was a steady outflow and more capital leaving Canada, impacting bond yields and exchange rates, he says.

“I don’t see anything here that suggests there’s a pattern that all of a sudden, capital is leaving Canada,” says Antunes.

“I wouldn’t panic over this.”