UPDATE 2-Foreigners return to Canadian securities but pace slower

Mon Sep 16, 2013 9:50am EDT

* Foreign investment C$6.09 bln vs. June sales C$15.43 bln

* Foreign investment so far this year half the rate of year earlier

* Foreigners buy C$3.64 bln in bonds after record sales in June

* Analyst sees less somewhat less safe-haven interest

By Randall Palmer

OTTAWA, Sept 16 (Reuters) - Foreigners resumed their acquisitions of Canadian securities in July after a huge divestment in June, with purchases so far this year running at half the pace of last year.

Statistics Canada said on Tuesday that foreigners bought a net C$6.09 billion ($5.91 billion) worth of securities in July after sales of C$15.43 billion in June. Their purchases of Canadian securities in the first seven months of 2013 reached C$21.90 billion versus C$42.67 billion a year earlier.

Most of the purchases were in Canadian bonds, C$3.64 billion, led by private corporate debt, followed by federal government bonds.

The bond purchases sharply contrasted with a record C$19.07 billion of bonds sold by foreigners in June.

"We have long argued that the foreign appetite in Canadian assets (mostly debt) was in part driven by international portfolio diversification for safe harbors and relative solid fiscal fundamentals. This narrative has been challenged in recent months as foreign purchases of federal debt have slowed," TD Securities Canada macro strategist Mazen Issa said in a note to clients.

Interest in federal debt could slow further as the global recovery slowly gathers momentum, he said, but added the caveat: "We still believe that in a world still enamored with large fiscal deficits, foreign interest in Canadian assets should be somewhat supported, as few AAA-rated sovereigns remain."

Foreigners bought C$1.52 billion of equities and C$927 million of money market paper. In both cases, it was the fourth straight month of purchases.

Canadians slowed their purchases of foreign securities to C$947 million, buying foreign bonds for the sixth straight month but selling foreign stocks.

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