Foreign investors retreat from Canadian securities as traders bet on U.S. bonds

Investing.com -- In a sign of shifting capital flows, Canadian investors acquired $15.6 billion worth of foreign securities in March, most of it in U.S. bonds, while foreign investors pulled $4.2 billion from Canadian markets, according to data released by Statistics Canada. This net outflow of $19.9 billion marked the second consecutive month of capital leaving Canada and brought the first quarter’s total outflow to $45.9 billion.

The investment spree by Canadian investors focused primarily on U.S. fixed-income assets, with March seeing $9.3 billion in U.S. bond purchases and an additional $1.8 billion in American government money market instruments. At the same time, investors trimmed their holdings of non-U.S. foreign debt by $1.8 billion, underscoring a clear preference for U.S. assets amid uncertain global macroeconomic trends.

Canadian appetite for foreign equities also remained solid, though moderated from a February surge. In March, Canadians acquired $7.0 billion in foreign equities, led by $5.0 billion in U.S. shares, following a blockbuster $29.9 billion investment in February, just before the S&P 500 pulled back slightly from its record highs.

On the other side of the ledger, foreign investors continued their retreat from Canadian equities, divesting $12.0 billion in March following an even steeper $21.9 billion exit in February. Those moves reflected broad disinvestment in banking, trade and transportation, and energy and mining sectors, all of which saw equity valuations dented amid a 1.9 percent drop in the S&P/TSX Composite Index.

Despite backing away from Canadian stocks, global investors increased their exposure to Canadian bonds, acquiring $11.9 billion in March. Most of this was concentrated in federal government debt with $13.1 billion in bond purchases, offset only in part by exits from federal government enterprise issuance.

However, non-residents also pulled $4.1 billion from Canadian money market instruments, primarily targeting federal government paper, which declined by $4.4 billion. The juxtapositions suggest that while Canadian debt remains attractive for longer durations, short-term instruments are falling out of favor among global investors.

This trend holds deeper significance as it may reflect growing investor caution toward Canadian markets amid heightened trade and policy uncertainty. With ongoing tensions surrounding North American supply chains and global tariff policies, investors appear increasingly reluctant to commit capital to Canadian assets that may be exposed to regulatory or geopolitical volatility.

The Bank of Canada’s decision in March to cut its policy rate to 2.75 percent may have helped sustain foreign demand for long-term government bonds even as equity markets softened. The Canadian dollar, meanwhile, posted a modest 0.4 percent gain against the U.S. dollar, aiding returns for some foreign bondholders hedging currency exposure.