International investment position

Fourth quarter 2003

Note to readers

Driven by the increase in Canadian direct investment abroad, Canada’s net liability to foreign residents fell to its lowest quarterly level in a year during the fourth quarter of 2003.

Canada’s net external liabilities – the difference between its external assets and foreign liabilities – reached $205.9 billion at the end of December, down from $218.5 billion at the end of September.

Net external liabilities of December represented 16.8% of Canada’s gross domestic product, down from 18.0% in the third quarter, but higher than the 15.6% at the end of 2002.

The value of international assets totalled $915.9 billion, up 1.9% from the third quarter. Canadian direct investment abroad, which increased by $11.0 billion, or 2.8%, in the fourth quarter, was responsible for two-thirds of the increase in the foreign asset position.

On the other hand, international liabilities increased only slightly to $1,121.8 billion. Higher deposit liabilities more than offset lower liabilities for Canadian bonds and foreign direct investment in Canada.

The Canadian dollar continued its appreciation compared to the US dollar in the fourth quarter, but lost ground against all other major currencies.

On a year-end basis, the $205.9 billion in net external liabilities at the close of 2003 was up for the first time since 1998. Net external liabilities at the end of 2002 was $184.0 billion.

Canada's international investment position

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Significant increase in Canadian direct investment abroad

Canadian direct investment abroad reached $398.2 billion at the end of December, up 2.8% from the end of September.

After three quarters of virtually no acquisitions in 2003, Canadian enterprises increased their direct investment abroad, with acquisitions totalling more than $9 billion between October and December. It was the most active three months since the fourth quarter of 2000.

Direct investment assets in the United States declined in value by $5.1 billion to $164.7 billion, mostly because of the strengthening Canadian dollar against the US dollar. At the same time, the value of Canadian direct investment in all other countries significantly increased to a record $233.5 billion.

The proportion of Canada’s direct investment in the United States continued to decrease. At the end of December, it accounted for only 41.4% of total direct investment abroad, the lowest proportion on record.

On a year-end basis, the value of Canadian direct investment abroad was down by $33.6 billion from the end of December 2002.

Holdings of foreign stocks and bonds virtually unchanged

The purchase of foreign securities in the fourth quarter was offset by the decline in the value of existing assets as the Canadian dollar rose against the US dollar. As a result, the foreign portfolio position remained virtually unchanged at $235.6 billion.

Canadian holding of foreign stocks reached $193.3 billion at the end of December, down $0.7 billion from the end of September.

During the same period, Canadian holdings of foreign bonds increased $1.1 billion to $42.3 billion.

Canada’s international reserves reached $45.7 billion at the end of December, the lowest level since the second quarter of 2000. At the end of 2002, Canada’s international reserves had reached $56.2 billion. The appreciation of the Canadian dollar was responsible for most of this decline.

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Foreign direct investment in Canada decreases

Foreign direct investment in Canada fell for the second straight quarter between October and December, reaching $357.7 billion. This followed 25 consecutive quarters of increases.

During the fourth quarter, residents bought back Canadian companies from foreign direct investors.

It was the first time that foreign direct investment in Canada declined for two quarters in a row since 1990, the first year for which quarterly foreign direct investment positions were compiled.

On a year-end basis, overall foreign direct investment in Canada at the close of 2003 was up $8.3 billion from the end of 2002.

The net direct investment position – the difference between Canadian direct investment abroad and foreign direct investment in Canada – increased to $40.5 billion at the end of December.

Foreign direct investment position

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Decline in foreign holdings of Canadian bonds

Foreign holdings of Canadian bonds reached $405.0 billion at the end of December, down $3.3 billion from the end of September.

Between the end of 2002 and the end of 2003, the value of bonds held by foreign investors dropped by $38.7 billion mostly because of the increase in the value of the Canadian dollar compared to the US dollar. More than one-half of the outstanding Canadian bonds held abroad are issued in US dollars.

Foreign investors continued to acquire Canadian shares during the quarter. At the end of December, they held $78.8 billion worth, the highest level since the first quarter of 2001.

The strong performance of the Canadian stock market in 2003 encouraged foreign investors to buy Canadian stocks. The position increased by 6.9% in 2003 as the S&P/TSX composite index gained over 24% during the year.

Foreign holdings of Canadian money market paper were virtually unchanged from the end of the third quarter at $21.1 billion.

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Statistical table

• International investment position at period-end

Information on methods and data quality available in the Integrated Meta Data Base: 1537.