Foreign investors’ growing appetite for Canadian stock is great news for the S&P/TSX Composite Index given the high correlation between foreign investment and the performance of country’s most important benchmark, says Martin Roberge, Canaccord Genuity strategist.
Statistics Canada on Monday released its figures the foreign investment in Canadian securities for September. Obviously,
Statistics Canada fund flow data released on Monday shows foreigners bought a net $10.8-billion of Canadian stocks, the largest monthly inflow since $6.3-billion was purchased in April 2006.
“Why are foreigners so important? Because it is the marginal swing factor when it comes to the direction of TSX,” Mr. Roberge said in a note to clients.
But Canada is still far from becoming a crowded stock trade. The analyst noted the TSX has lagged most of its global peers over the past few years and foreigners have only bought $18.2-billion worth of equities in the past year.
“This is far from the cycle peaks of $32.6 billion in May 2006 and the $27.8 billion in September 2000, two points that also preceded TSX peaks,” he said. “Thus, we see good pent-up demand for Canadian stocks.”
Mr. Roberge also noted foreign investment in bonds is dwindling, which could be a headwind for the Canadian dollar. There was $2.8-billion net selling in Canadian bonds in September.
“After loading up on Canadian bonds after US government bonds lost their AAA rating in 2011, foreigners are unloading their positions as the global bond bear market rages on,” he said. “Deteriorating foreign bond flows should bring the Canadian dollar around 90 cents.”