Canada's international investment position, second quarter 2015
Second quarter 2015
Canada's net international investment position edged up $10.4 billion in the second quarter to reach a net asset position of $231.7 billion. This was the fourth consecutive quarterly increase in the net asset position, despite ongoing balance of payments current account deficits.
The advance in the net asset position in the second quarter reflected a slight increase in international assets combined with a slight decrease in international liabilities. Overall, strong cross-border investment activities for both assets and liabilities were largely offset by the downward effect of generally weaker world equity market prices and the appreciation of the Canadian dollar against the US dollar during the quarter.
The change in the net international investment position since 2013 has notably been driven by fluctuations in market prices and exchange rates. Generally, these factors more than offset the inflows of funds recorded in the financial account to finance the current account deficit.
Most of Canada's international assets are denominated in foreign currencies, while less than half of Canada's international liabilities are in foreign currencies, mainly in US dollars. The Canadian dollar appreciated 1.4% against the US dollar and 3.5% against the Japanese yen, but lost 4.2% against the British pound and 2.2% against the Euro.
Canadian acquisitions of foreign assets moderated by revaluation effects
Canada's international assets increased $4.2 billion to reach $3,660.2 billion at the end of the second quarter. Acquisitions of foreign assets were $58.9 billion in the quarter, but were almost completely offset by revaluation effects. The effect of a stronger Canadian dollar against the US dollar contributed to the decline, reflecting the fact that over 50% of foreign assets held by Canadian investors were in the United States. The weakening of most major global stock markets was also a contributing factor.
International liabilities edge down on weaker domestic market prices
Canada's international liabilities edged down $6.2 billion to $3,428.5 billion. The loss mainly reflected a decline in both Canadian stock and bond prices. The Standard and Poor's / Toronto Stock Exchange composite index was down by 2.3% over the quarter. The appreciation of the Canadian dollar against the US dollar also contributed to the reduction in overall international liabilities. Together, these revaluation effects more than offset the $71.5 billion inflows recorded in the quarter.
Canada's gross external debt, the value of international liabilities in the form of debt instruments, rose by $11.0 billion to $1,950.6 billion. Foreign holdings of Canadian short-term debt instruments advanced $41.7 billion to $743.3 billion, led by strong foreign investment in money market and deposit instruments. This increase was moderated by a decline in foreign holdings of long-term debt instruments, mainly Canadian bonds. Short-term debt instruments now represent 38.1% of Canada's gross external debt, the highest proportion on record and slightly above the level reached in the second quarter of 2007, prior to the economic downturn of 2008.
Net direct investment asset position widens
Canada's net direct investment asset position was up $18.4 billion to $347.0 billion in the second quarter. The net asset position has increased for a fourth straight quarter.
Canadian direct investment abroad increased $7.8 billion to $1,452.0 billion. Strong outflows in the quarter were moderated by the downward effect of an appreciating Canadian dollar against the US dollar and lower foreign equity prices. The United States is the major destination for Canadian direct investment abroad, accounting for 47% of the total.
Foreign direct investment in Canada decreased $10.7 billion to $1,105.0 billion. Relatively strong foreign investment in the quarter was more than offset by lower Canadian equity prices.
Net foreign liability position on portfolio investment narrows
Canada's net foreign liability position on portfolio investment was down $20.2 billion to $91.4 billion. The value of foreign securities held by Canadians edged up $3.3 billion while foreign holdings of Canadian securities declined by $17.0 billion.
The slight increase in Canadian holdings of foreign securities was all in non-US foreign instruments as holdings of US securities edged down, mainly equities. Canadian investors' exposure to foreign securities was mainly in the form of equities (80%) as opposed to debt securities (20%). This was also an investment pattern observed in the United States. In contrast, most other major investing countries such as the United Kingdom, Germany, France and Japan had a higher share of their portfolio assets held in the form of debt securities.
The decline in foreign holdings of Canadian securities was mostly in Canadian bonds, down $26.7 billion to $949.7 billion. Non-resident holdings of Canadian stocks declined to $558.6 billion, down $9.5 billion on lower market prices. Record foreign investment in Canadian money market instruments in the quarter, all from US investors, moderated the overall decline.
Note to readers
The main measure of the International Investment Position Account now incorporates market valuation for tradable securities and foreign direct investment equity. This adds a further dimension to the analysis of Canada's net international investment position and more accurately reflects changes in that position. The international investment position at book value is still available, as the annual foreign direct investment release includes geographical and industry details. For more information, see "Valuation of assets and liabilities."
The value of assets and liabilities denominated in foreign currency is 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 Canada's 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 Canadian dollar is depreciating.
The international investment position presents the value and composition of Canada's assets and liabilities to the rest of the world.
Canada's net international investment position is the difference between Canada's assets and liabilities to the rest of the world.
The excess of international liabilities over assets can be referred to as Canada's net foreign debt.
The excess of international assets over liabilities can be referred to as Canada's net foreign assets.
For more information, contact us (toll-free 1-800-263-1136; 514-283-8300; firstname.lastname@example.org).
To enquire about the concepts, methods or data quality of this release, contact Marie-Josée Lamontagne (613-790-8463; email@example.com), International Accounts and Trade Division.
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