Canada's international investment position

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Canada's net foreign debt edged up $1.8 billion to $199.3 billion at the end of the second quarter, as international liabilities and assets both advanced at about the same rate. This reflected the continued strong inflow of funds from abroad and the depreciation of the Canadian dollar. Net foreign debt has increased over the past six quarters to reach 12.4% of Canada's gross domestic product in the second quarter. Nevertheless, it remains well below the 40% range of the mid-1990s.

International assets continue to be affected by changes in the value of the Canadian dollar

Canada's international assets increased 2.8% to $1,433.6 billion in the second quarter. This followed four consecutive quarters of decline in international assets, which was primarily a result of the effect of an appreciating Canadian dollar on these foreign currency-denominated holdings. The Canadian dollar depreciated against most foreign currencies in the second quarter, down 4.6% against the US dollar, 8.7% against the Japanese yen, and 4.5% against the British pound. The resulting upward revaluation effect on the value of Canadian foreign currency denominated assets was $37.0 billion.

International liabilities reflect sustained strong foreign investment in Canadian securities

International liabilities increased 2.5% to $1,633.0 billion, as non-resident investors placed a further $27.3 billion in Canada during the quarter. This activity helped finance the current account deficit in the quarter and was concentrated in foreign acquisitions of Canadian bonds. The depreciation of the Canadian dollar added to the increase with a $21.8 billion upward revaluation of foreign currency denominated liabilities.

Direct investment assets rise by more than liabilities

Inward and outward direct investment flows were largely offsetting in the second quarter, but Canadian direct investment abroad increased by more than foreign direct investment in Canada. This reflected a $16.4 billion upward revaluation effect due to the depreciating Canadian dollar boosting the value of direct investment assets abroad. As a result, Canada's net asset position on direct investment advanced over the second quarter.

Strong investment in Canadian bonds leads increase in liabilities

Non-resident holdings of Canadian securities were up strongly in the second quarter, which mainly reflected foreign investment of $40.7 billion, including high purchases of federal bonds ($19.4 billion). In addition, there was an $11.5 billion increase in foreign currency denominated liabilities as a result of the depreciation of the Canadian dollar.

The change in Canadian investors' holdings of foreign securities was largely due to the upward revaluation effect of the depreciation of the Canadian dollar on these assets.

Weak global markets also contribute to the rise in net foreign debt

Canada's overall net international investment position can also be calculated with tradable securities valued at market prices. By this measure, Canada's net foreign debt rose by $38.3 billion to $208.7 billion by the end of the second quarter. This mainly reflected equity market declines, with global markets faring worse than Canadian markets. These fluctuations removed 11.3% from the value of foreign stocks held by Canadians and 6.2% from the value of Canadian corporate shares held by non-residents.

Available on CANSIM: tables 376-0055 to 376-0057 and 376-0059.

Definitions, data sources and methods: survey numbers, including related surveys, 1534 and 1537.

The second quarter 2010 issue of Canada's International Investment Position (67-202-X, free) will be available soon.

For more information, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Christian Lajule (613-951-2062) or Komal Bobal (613-951-6645), Balance of Payments Division.