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Canada's international investment position
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Canada's net liability to foreign residents increased by $12.5 billion in the second quarter, mostly as a result of valuation changes from a rising Canadian dollar.
The strengthening of the Canadian dollar against the US dollar had a much stronger negative impact on Canada's international assets than on its international liabilities.
Canada's net external liability (the difference between its external assets and liabilities) amounted to $148.8 billion at the end of the second quarter. This was 9.2% higher than the revised level of $136.3 billion at the end of the previous quarter, which was the lowest since the end of 1981.
The value of international assets rose $14.8 billion to $1,096.5 billion at the end of June. Net transactions of $47.9 billion that occurred during the quarter were partly offset by the dollar, which removed $28.2 billion from the value of these assets.
Estimates at market valueAs of the first quarter of 2005, total portfolio investment (equities, bonds and money market instruments) are available at market value. Annual market value estimates of foreign direct investment are also available and were released earlier this year. These additional series are part of a multi-year initiative to improve the international investment position information. The following analysis focuses on the book value series, however, and this practice will continue until a full set of market value estimates becomes available. Currency valuation The value of assets and liabilities denominated in foreign currency are converted to Canadian dollars at the end of each period for which a balance sheet is calculated. Most of Canada's foreign assets are denominated in foreign currencies while less than half of our international liabilities are in foreign currencies. When the Canadian dollar is appreciating in value, the restatement of the value of these assets and liabilities in Canadian dollars lowers the recorded value. The opposite is true when the dollar is depreciating. |
At the same time, Canada's international liabilities increased by $27.3 billion to $1,245.3 billion. Net transactions of over $50 billion more than offset the effect of the strengthening dollar which removed $15.1 billion from the position.
Net external liabilities represented 10.4% of Canada's gross domestic product (GDP) at the end of the second quarter, up from 9.6% in the previous quarter.
The Canadian dollar gained 4.6% against its US counterpart during the quarter, but lost ground against the euro and the pound sterling.
Assets: Foreign bond holdings rise, Canadian direct investment abroad declines
Canadian holdings of foreign bonds increased significantly during the second quarter, rising nearly 10% to $102.8 billion. These holdings have been substantially up each quarter for the past two years. As a consequence, Canadian investors have more than doubled their total assets in foreign bonds since the beginning of 2004.
Holdings of foreign stocks declined slightly to $192.5 billion, down $1.5 billion from the end of March, mostly as a result of the strengthening Canadian dollar. At the same time, holdings of foreign money market paper decreased by $1.4 billion to $12.7 billion.
The stronger Canadian dollar had a significant impact on the total value of Canadian direct investment abroad, which fell by $3.2 billion to $475.3 billion at the end of June. The exchange rate revaluation removed $14.1 billion from asset values while net transactions accounted for $11.0 billion.
Canadian direct investment in the United States decreased $6.3 billion to $213.2 billion. At the same time, Canadian direct investment in all other countries increased to $262.1 billion. Direct investments in the United States represented about 45% of all direct investments abroad.
Increase in foreign direct investment in Canada
Foreign direct investment in Canada increased $7.5 billion to $433.8 billion at the end of the second quarter. Of the total, direct investments from the United States amounted to $276.7 billion.
The net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada) declined to $41.5 billion at the end of June. This was a $10.7 billion reduction from the previous quarter.
Foreign holdings of Canadian stocks increased $3.3 billion to a record $113.6 billion. Foreign investors bought Canadian shares during the quarter even though the S&P/TSX composite index lost over 4% between March and June.
Substantial decline in foreign holdings of Canadian bonds
Foreign holdings of Canadian bonds reached $369.1 billion at the end of June, down $10.9 billion from the end of March.
Foreign investors reduced their holdings of federal government bonds by $3.5 billion to $43.6 billion. This was the lowest level in almost two decades, as the federal government continued to pay down its external debt.
At the same time, foreign investors also reduced their holdings of provincial government bonds by $2.2 billion to $93.9 billion, the lowest level since the end of 1993.
Foreign investors made significant investments in Canadian money market paper for a third consecutive quarter. As a result, foreign holdings of Canadian money market paper increased $4.1 billion to $27.0 billion.
Finally, Canadian deposit liabilities to non-residents increased $20.3 billion to $235.8 billion.
Available on CANSIM: tables 376-0055 to 376-0057 and 376-0059.
Definitions, data sources and methods: survey number 1537.
The second quarter 2006 issue of Canada's International Investment Position (67-202-XIE, free) will be available soon.
For general information, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the methods, concepts or data quality of this release, contact Éric Simard (613-951-7244) or Christian Lajule (613-951-2062), Balance of Payments Division.
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