Foreign Direct Investment in Canada Posts First Drop in 14 Years as HSBC Sells Local Unit

Statistics Canada’s offices in Ottawa on March 8, 2019. (The Canadian Press/Justin Tang)

Foreign direct investment in Canada has dropped for the first quarter in 14 years, Statistics Canada data shows, after UK lender HSBC sold its local division to the Royal Bank of Canada in March.

Foreign direct investors withdrew $6.2 billion from Canada in the first three months of this year, StatCan said in its press release on the country’s first-quarter balance of international payments.

Overall, foreign direct investors sold $11.1 billion worth of Canadian assets through various mergers and takeovers in the quarter, reducing the amount of foreign direct investment in the country.

“In the first quarter, the finance and insurance sector saw the largest decrease, which was partially offset by investments in the manufacturing, trade and transportation, and energy and mining sectors,” StatCan said.

The major deal involving a foreign direct investor in the quarter was the sale of UK lender HSBC’s Canadian unit to Royal Bank of Canada for $13.5 billion, completed on March 29. It wasn’t clear how much of the sum exited Canada, but HSBC booked a profit of about $6.7 billion on the sale.

In the fourth quarter of 2023, by comparison, foreign direct investment in Canada totalled $11.3 billion and it had remained in positive territory for 14 years, suggesting the overall divestment registered in the first quarter of this year is temporary.

The sales, or divestments, by foreign direct investors in the first quarter were partly offset by foreign companies reinvesting in their Canadian units, which brought in $7.3 billion.

As foreign direct investment in Canada fell, Canadian direct investment abroad rose 72% to $29.8 billion in the first quarter from $17.3 billion in the previous quarter.

And Canadian investment in foreign bonds and stocks surged.

“Canadian investors acquired a record $37.2 billion of foreign bonds in the first quarter, more than they had acquired during the entire year of 2023. Acquisitions of government bonds accounted for the bulk of the activity,” StatCan said in its release. “In addition, Canadian investors increased their holdings of foreign stocks by $14.1 billion in the first quarter of 2024.”

At the same time, Canadian direct investment abroad rose 72 percent to $29.8 billion in the first quarter from $17.3 billion in the fourth quarter of 2023.

Foreign investors bought $57.9 billion in Canadian bonds in the first quarter, led by purchases of federal government and private corporate bonds but reduced their holdings of Canadian short-term debt securities by $28.2 billion and of Canadian portfolio shares by $6.1 billion.

The “weak foreign investment patterns highlight concerns around the attractiveness of doing business in Canada,” Bank of Montreal economist Shelly Kaushik wrote in an analysis on the bank’s website.

Overall, Canada’s current account deficit widened to $5.4 billion in the first quarter, meaning $5.4 billion more left the country than came in. That’s compared with a deficit of $4.5 billion in the fourth quarter of 2023.