By Akhil Shah

OTTAWA (MNI) Foreign investors continue to add Canadian
securities to their portfolios, albeit at a slower pace, Statistics
Canada reported Monday. Non-resident investment slowed to C$7.92 billion
in August, down from C$12.131 billion in July.

Canadian investors also purchased C$2.049 billion worth of foreign
securities in August, concentrating mainly on foreign stocks.

The bulk of the foreign investment in August was concentrated in
the bond market, followed by Canadian money market instruments. Foreign
investment in Canadian bonds reached a three-month high in August,
acquiring C$6.007 billion. From the beginning of the year, foreigners
have bought C$31.621 billion worth of Canadian bonds as compared to
C$68.701 billion from the same period last year.

Investment in Canadian bonds was focused on U.S. dollar-denominated
new issues by federal government enterprises and provincial governments,
the agency reported.

August marked the third consecutive month where foreigners divested
from federal bonds as secondary market purchases remained subdued. They
sold C$1.0 billion in federal bonds, targeting the shorter term bonds.
The difference between long and short-term interest rates narrowed to
its lowest level in three years as long-term interest rates edged lower
in August.

Non-resident investment in Canadian money market instruments also
increased by C$1.6 billion as they continued to add Canadian T-bills to
their holdings. Since April, foreigners have increased holdings of
T-bills by over C$14 billion, with the exception of June where they
divested C$1.173 billion.

Foreign investment in Canadian equities slowed to C$306 million,
marking the smallest acquisition in four months. The majority of this
activity resulted from new issues as non-residents sold Canadian shares
on the secondary market for the second consecutive month. From December
2010 to June 2011, foreign investment in Canadian stocks through
secondary markets totaled C$13.8 billion. Stock prices declined for the
sixth consecutive month in August, Statcan reported.

Canadian investors increased their holdings of foreign equity in
August by C$3.68 billion, marking an eighth consecutive monthly gain.
Investment in U.S. stocks once again accounted for all the gains as
prices declined for the fourth month in a row. Led by demand from
Canadian pension funds, investors continue to favor U.S. stocks over
non-U.S. stocks.

Resident investors continued to divest from foreign bonds,
withdrawing an additional C$1.4 billion in August. The reduction was led
by U.S. government securities as long term interest rates declined to
levels last seen at the end of 2008. Since January 2011, domestic
investors have reduced holdings of foreign bonds by C$10.8 billion.

Canadian investors also decreased their holdings of foreign money
market instruments by C$232 million in August, more than offsetting the
C$191 million rise in investment in July. The divestment was
concentrated in U.S. treasury bills as short-term interest rates fell
lower, reaching 0.02% by the end of the month.

–Akhil Shah is a reporter with Need To Know News in Ottawa

** Market News International Ottawa **

[TOPICS: M$C$$$,MAUDS$]