Canadians are shifting from stalled domestic stock markets to foreign investments

In the past year, Canada’s domestic stock market performance has stagnated compared to that of the U.S. and most other G7 countries, contributing to the record high value of Canadian investment outside of the country relative to foreign investment within.

On May 30, Statistics Canada reported the first quarter of 2024’s international investment position (IIP). This measures Canadian investment in foreign stock and foreign direct investment abroad, minus the value of foreign investment in Canadian stocks and gross direct foreign investment. It is generally used to indicate how attractive a country is to investment from their own population and to foreigners.

In the opening months of 2024, the value of Canadian investments abroad relative to foreign investments in Canada rose CAD $309.5 billion to $1.99 trillion. That was the largest inter-quarter real dollar increase in the value of Canada’s foreign investment (relative to foreign investment into Canada) since 2014, and the highest Canadian IIP since data collection began in 1990.

Although a good indication of how attractive Canada’s investment, the value of the IIP can shift with variables like the value of the Canadian dollar or, more so, that of international stock markets. To get at part of the reason behind the record value of Canadian investment abroad relative to foreign investment in Canada, The Hub has looked into the recent performance of domestic stock markets from world’s largest advanced economies.

Since June 2023, the Toronto Stock Exchange Composite index of 250 stocks has risen only 11.2 percent. Compared to the domestic stock markets of other G7 countries, Canada saw the third worst annual stock market growth after France and the U.K. The NASDAQ and S&P 500, the U.S. indices of over 3,000 and 500 top performance stocks, meanwhile, grew 32 and 26 percent. Thus the value of Canadian’s investment position in the U.S. is today CAD $1.5 billion.

Canada’s poor market performance, contributing to the record value of outside investment relative to the value of foreign investment within Canada, has largely been driven by Canada’s productivity.

The five year average percent change of GDP per hour worked, a common measure of productivity, fell to negative 0.3 percent, in November 2023.

BMO chief economist Douglas Porter noted this as a first since the post-Second World War economic order was established in 1945. Porter wrote that month that this can’t be blamed entirely on the COVID-19 pandemic given the U.S.’ near-normal productivity growth in the past five years. In the business sector alone, the U.S. managed a 1.7 percent average annual productivity gain, while Canada fell to 0.3 percent.