Canada Sees Investment Flight As Economy Slows & Gov Targets Investors

Canada may be in the process of losing its reputation as an investment safe haven. Statistics Canada (Stat Can) released its balance of international payments for Q1 2024, reinforcing preliminary data showing investors are looking for opportunities abroad. It also revealed foreign investors are engaging in their first divestment from the country in 14 years, as the domestic economy heads towards underperforming the global average. 

Foreign Investors Pulled Billions Out of Canada’s Economy 

Canada is no longer the foreign investment darling it once was, as money flees back overseas. Net foreign direct investment into Canada was -$3.4 billion in Q1 2024, meaning investors withdrew more money than they let remain in the country. It was the largest withdrawal going back to at least 2007, when the data set begins. Though a net outflow historically is so rare that only one other quarter (Q4 2020) had a negative print. 

The agency noted foreign investors withdrew a total of $6.8 billion from Canada in Q1, the first investment in 14 years.  

There was one bright spot for foreign investment, with a caveat. Investors abroad managed to sink a record $57.9 billion into Canadian bonds. The catch is most of the private bonds issued were from financial institutions, and denominated in foreign currency. There’s little doubt about the resilience of the country’s financial system, but not a lot of confidence in the currency. 

Canadian Investors Send More Capital Abroad As The Economy Cools  

It’s not just foreign investors—domestic investors are looking abroad for better opportunities too. Canadian direct investment abroad accelerated 72% to $29.8 billion in Q1 2024. Canadian investors also scooped up $37.2 billion in foreign bonds in the quarter, more than the total they picked up in all of 2023. 

The U.S. stock market craze is also picking up steam in Canada. Investors bought $14.1 billion in foreign equities in Q1 2024, the opposite direction of where this trend was at the same time last year. 

Canadians Look To Invest More Abroad

Canadian quarterly foreign investment portfolio in dollars.

Source: Statistics Canada.

Canada is traditionally seen as a safe haven in turbulent times, but that may no longer be the case. Both domestic and international investors are fleeing the country, amidst targeted taxation to slow investment in anything but housing. 

At the same time, the country’s debt heavy households are expected to put a drag on its economy. Even the Bank of Canada (BoC) is now forecasting economic growth will lag the global average. In hindsight, it isn’t surprising to see investors head for the door. It’s more surprising that it isn’t happening at an even larger scale.