HSBC Sells Local Unit, Leading to First Drop in Foreign Direct Investment in Canada in 14 Years

May 31, 2024 TruthUSA

Canada experienced a decline in foreign direct investment for the first time in 14 years, as per Statistics Canada data. This drop followed the sale of its local division by UK lender HSBC to the Royal Bank of Canada in March.

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

In the quarter, foreign direct investors sold $11.1 billion worth of Canadian assets through mergers and takeovers, resulting in a reduction in foreign direct investment in the country.

StatCan noted that “the finance and insurance sector saw the largest decrease in investments, offset by investments in manufacturing, trade and transportation, as well as energy and mining sectors.”

The notable deal in the quarter was the sale of HSBC’s Canadian unit to Royal Bank of Canada for $13.5 billion, completed on March 29. The exact amount of funds exiting Canada was not specified, but HSBC reported a profit of around $6.7 billion from the sale.

Comparatively, in the fourth quarter of 2023, foreign direct investment in Canada stood at $11.3 billion, remaining positive for the past 14 years, suggesting that the divestment seen in the first quarter of this year may be temporary.

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In contrast to the decline in foreign direct investment, Canadian direct investment abroad saw a 72% increase to $29.8 billion in the first quarter from $17.3 billion in the previous quarter.

Moreover, Canadian investment in foreign bonds and stocks experienced a significant surge, with a record $37.2 billion foreign bond acquisition and a $14.1 billion increase in foreign stock holdings.

Foreign investors purchased $57.9 billion in Canadian bonds in the first quarter, primarily federal government and private corporate bonds, while reducing their holdings of Canadian short-term debt securities and portfolio shares.

Bank of Montreal economist Shelly Kaushik highlighted concerns about the appeal of conducting business in Canada due to the weak foreign investment patterns.

Overall, Canada’s current account deficit rose to $5.4 billion in the first quarter, indicating that more funds left the country than entered it, compared to a deficit of $4.5 billion in the fourth quarter of 2023.

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