The investing world is beating a path to Canada's doorstep. The big question is, why?
Statistics Canada reported this week that foreign investors bought a net $13.6-billion of Canadian securities in September - $12.9-billion of which was in Canadian stocks.
For the year to date, net foreign purchases of Canadian equities are running at more than $24-billion - roughly five times what they were for the same period in 2008.
All this enthusiasm despite the fact that the Canadian economy remains lukewarm, to be charitable. The most recent Canadian gross domestic product numbers showed the economy contracting 4 per cent year-over-year, and the so-called recovery stalled out over the summer, with a 0.1-per-cent decline in August.
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So why, as economist and market strategist Stewart Hall of HSBC Canada put it in a report this week, is the world embracing "a middling economic story"?
A GOLD-PLATED MONTH
For one thing, some hefty new stock issues in Canada caught investors' ever-wandering eyes in September, inflating the monthly data.
Most significant, Mr. Hall said, was Barrick Gold Corp., which issued $4-billion of stock to finance the closing of its gold hedge book. Given Barrick's high international profile and the surging price of gold, much of the issue would have ended up in the hands of foreign investors, and would have attracted scads of overseas money to Barrick's stock in general.
RISKY BUSINESS, AGAIN
As for the huge year-to-date foreign buying of Canadian stocks, that may have less to do with Canada's own economic story than with what has been going on in the rest of the world. The global economic recovery and easing of the credit crunch has restored big international investors' appetite for risk - and as they start throwing their money around again, Canada's pro-cyclical market is a beneficiary.
"Canada continued to find favour in the hearts of the global investment community as markets continue to embrace risk," he said.
Indeed, Canada's market resurgence has come as the VIX index - a measure of U.S. stock volatility, seen as a proxy for investors' level of risk aversion - has eased to pre-financial-crisis levels.
The Canadian market's heavy tilt toward resource stocks has made it doubly attractive, because the freer flow of investing money and more bullish economic view have fuelled commodity prices, another reason to like Canada.
The attraction would be hard to sustain if the economy remained stalled. But Canada's leading economic indicator rose 0.7 per cent in October, its fifth consecutive increase. The forward-looking indicator has built a strong case that the economy will soon justify foreign investors' enthusiasm.