They reduced their exposure by $12.6 billion (US$9.8 billion) in June, the third straight month of outflows, Statistics Canada data released on Tuesday showed. Foreign investors pulled out the most money since 2007 as inflation soared to its fastest pace in four decades. Canadian stocks tend to be dominated by cyclical industries such as banks and energy companies. The biggest outflows in June were in banking stocks, which make up about a fifth of the S&P TSX Composite Index. Those stocks are down about 15 percent from their February high. Decade-high inflation and fears of a recession have weighed on the Canadian market, and some strategists have cooled on Canadian stocks. Others remain bullish that the market will outperform the S&P 500 for the first time in six years. Meanwhile, underlying price pressures remain high in Canada, with inflation rising in July from the previous month, which will likely keep the country’s central bank on an aggressive rate hike. While Canadian stocks rallied in August as companies posted better-than-expected earnings, Big Six bank earnings next week could give investors a look at whether the recession is a bearish one or the new status quo. Stocks’ jumps in recent weeks could be more than a “temporary summer bounce,” according to Scotiabank. “The summer rally in stocks is big and could extend a bit longer, but we wouldn’t get too excited,” Scotiabank analyst Hugo Ste-Marie said in a note in early August. “Key leading indicators are still moving lower, suggesting that the economic discomfort and pain will persist for some time.”
