(Bloomberg) -- Canadians are shunning their domestic market and investing record amounts abroad, according to National Bank of Canada Financial Markets.
Net purchases of overseas securities by locals soared to C$144.4 billion ($115.4 billion) in the first 11 months of 2021 -- shattering a previous record of C$73.3 billion set in 2006, the bank said, citing Statistics Canada. Canadians spent a record C$81.8 billion on U.S. securities.
“We have a really exceptional amount of money leaving the country to seek out exposure in U.S. equities like never before,” Warren Lovely, managing director, economics and strategy at National Bank of Canada said by phone. Canada has an ongoing “capital bleed problem” that needs to be addressed with a competitive tax environment and moving on environmental, social and governance concerns, he added
Still, Lovely said in a report Monday that foreign investors continue to pour money into Canadian securities to the point that net portfolio flows are positive for Canada as a whole.
National Bank previously raised concern about Canadian capital flight in a Nov. 2021 report entitled “Canada’s can’t afford to bleed capital like this,” which said sustained lower investment in mining, quarrying and oil extraction explained the decline. The bank points to U.S. information technology companies as being net beneficiaries of Canadian investment outflows.
Tech stocks have a 9% weighting on the S&P/TSX Composite, compared with 28% on the S&P 500 Index, according to data compiled by Bloomberg.
“It would be nice to have a more diversified economy to not have Canadians fleeing,” said Ari Pandes, associate finance professor at the University of Calgary, adding that domestic investors looking for tech exposure flock to the U.S., given the relative size of the sector.
On the fixed-income side, investors in Canadian government bonds were hurt in 2021 by rising inflation. On Monday, Canadian businesses reported widespread challenges with supply chains and labor shortages in a central bank survey -- fueling expectations of a rate hike by the Bank of Canada as early as next week.
(Updates with inflation context in last paragraph. An earlier version corrected currency conversion in second paragraph.)
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