Global investment in Canada is surging, but is it a vote of confidence or vultures circling? Statistics Canada (StatCan) data shows foreign investment boomed in May, prompting some outlets to frame the surge as a renewed confidence in Canada. BMO argues the composition tells a very different story. Investors aren’t piling into Canadian companies, but almost exclusively into bonds—mostly public debt, with a large share issued in foreign currency. Even that warning seems optimistic once you examine who’s actually buying the debt and how those purchases are financed.
Canada Just Saw A Rare Capital Inflow of $256 Billion
Last week’s foreign investment data sparked a wave of coverage proclaiming investor confidence in Canada. The 12-month rolling tally of non-resident portfolio investment reached a mind-boggling $256 billion in May, a level not seen in years. Coverage in Bloomberg stood out, with an “impressive chart,” says BMO chief economist Douglas Porter.
“As noted in the piece, that’s a ‘pace rarely seen’—only topped in early 2022— which it claims is ‘a sign of confidence’,” notes Porter, leaving us with a pause that hints there’s a little more to this story.
Most Of Canada’s Capital Inflow Is Going Into Bonds, Not Stocks
Bloomberg could have used a chart of PEI potato outputs, and it would have been just as relevant to the claim. Headline inflows only tell us that capital is arriving; they don’t explain its underlying purpose or source. It may be the result of rising confidence or it might not be. For the actual read, we need the breakdown of what’s actually being bought.
“Alas, what isn’t mentioned is that the vast majority of that big inflow in the past year has been directed to bonds, not stocks,” explains Porter.
The net inflows for equities and investment funds remain close to zero over that same period. “Not to fully rain on the parade, we’ll point out that net FDI flows have turned slightly positive since the start of 2025; that’s rare,” he adds.
Why Hasn’t The Foreign Investment Inflow Boosted The Loonie?
A $256 billion surge in foreign portfolio investment should provide a boost for the loonie. Rising demand for a country’s currency helps to lower borrowing costs and bolster purchasing power. Despite the record bond buying, the currency hasn’t seen a proportional boost, a disconnect BMO attributes to the composition of those purchases.
“… even within the record net buying of Canadian bonds in the past year, nearly half of those net inflows have been aimed at issues that were in currencies other than the Canadian dollar,” said Porter. “That’s one reason the large inflow hasn’t done much to support the currency.”
The bank makes an interesting point, as a quick check reveals a large chunk of Canadian bonds being issued in foreign currency. The Government of Canada’s US$3.5 billion global bond launched on May 20th. The Government of Ontario’s majority-owned utility provider Hydro One also launched a US$1 billion fund on that same day. In fact, what Bloomberg saw as confidence appears to be mostly demand for government debt.
Foreign Investment Confidence In Canada Or A Looming Debt Crisis?
Foreign portfolio investment in total Canadian government bonds and total investment in bonds, rolling 12 month sum.
Source: Statistics Canada; Better Dwellling.
Of the bonds, most (58.4%) were government debt. The issue isn’t just the snowballing public liabilities, but who’s buying it and the source of funds. Canada has been aggressively tapping hedge funds, who are financing their purchases with leverage—often secured by government debt. The Bank of Canada didn’t see this as a vote of confidence, but a “systemic threat” that can trigger a domestic crisis. They’re always such negative nellies, eh?
