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International investment position
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Second quarter 2007
International investment position note to readers
Canada’s net external liabilities jumped during the second quarter of 2007 in the wake of a surging Canadian dollar.
The Canadian dollar value of both international assets and liabilities were down at the end of June. However the decline in international assets, which are influenced more by exchange rate movements, was almost four times the decrease in liabilities.
As a result, net external liabilities (the difference between Canada's external assets and foreign liabilities) increased $32.0 billion to $124.4 billion.
The value of international assets fell to $1,193.1 billion, a drop of $44.0 billion from the previous quarter.
The dollar, which gained in value compared to major foreign currencies from March 31st to June 30th, removed $76.8 billion from the value of these assets. This more than offset gains resulting from financial transactions, especially from investment in foreign bonds and stocks.
At the same time, the nation's international liabilities declined $12.0 billion to $1,317.6 billion. This impact of the strengthening dollar was partly offset by increased activity in international acquisitions of Canadian firms.
Net external liabilities at the end of June represented 8.1% of Canada's gross domestic product, up from 6.2% the previous quarter, which was a record low.
Chart G.1 Canada’s international investment
position
The Canadian dollar made appreciable gains against major foreign currencies in the second quarter. It gained 8.4% against the US dollar, 6.2% against the pound sterling, 7.0% against the Euro and 13.2% against the Japanese yen.
Assets: Substantial decline in value of direct investment abroad
The stronger Canadian dollar in the second quarter had a large impact on the value of Canadian direct investment abroad, which fell by $28.0 billion to $508.2 billion at the end of June.
The injection of capital into existing affiliates was completely offset by the currency movements. The stronger dollar removed $37.2 billion from the value of Canadian direct investment abroad.
Canadian direct investment in the United States fell by $13.8 billion to $220.7 billion while Canadian direct investment in all other countries decreased by $14.2 billion to $287.5 billion.
Despite the negative impact from the stronger Canadian dollar, Canadian holdings of foreign bonds increased by $6.8 billion to $151.1 billion as Canadians made large purchases during the quarter, especially of maple bonds.
Holdings of foreign stocks decreased to reach $205.1 billion, down $13.5 billion from the end of March. At the same time, Canadian holdings of foreign money market paper decreased slightly to $19.8 billion.
Chart G.2 Contributors to net change in asset
values between the first and second quarter of 2007
Liabilities: Increase in foreign direct investment in Canada
Foreign investors added $10.0 billion to their direct investment position in Canada. Foreign direct investment in Canada reached $473.2 billion at the end of June.
Foreign direct investors were active in acquisitions of Canadian firms and this contributed to the increase.
Canada’s net asset position on direct investment - the difference between Canadian direct investment abroad and foreign direct investment in Canada - decreased to $35.0 billion at the end of June, the lowest level since the third quarter of 2003.
Transactions in Canadian bonds reduced foreign holdings by $4.9 billion in the second quarter.
Combined with the currency effect (more than one-half of the outstanding Canadian bonds held by foreign investors are issued in foreign currencies), the total holdings of Canadian bonds fell by $25.0 billion to $385.1 billion.
Foreign holdings of Canadian stocks decreased slightly to $111.1 billion at the end of the quarter while foreign holdings of Canadian money market paper were up by less than a billion to $24.1 billion.
Chart G.3 Contributors to net change in liability
values between the first and second quarter of 2007
Statistical table
Information on methods and data quality available in the Integrated Meta Data Base: 1537.
