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International investment position
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Second quarter 2009
International investment position note to readers
Canada had a $34.8 billion net foreign debt position at the end of the second quarter following two quarters in a net asset position. The $45.3 billion decline in the net international investment position from the first to second quarter resulted largely from a $31.5 billion downward revaluation due to a sharp appreciation of the Canadian dollar, and a $12.1 billion net inflow of funds from abroad linked to a larger current account deficit. International assets decreased in value by 4.6% during the quarter to $1,464.3 billion, while international liabilities decreased 1.6% to $1,499.2 billion.
Chart G.1 Canada's international investment position
Description for Chart G.1
Appreciation of Canadian dollar lowers international assets more than liabilities
The volatility of the Canadian dollar continued to dominate the change in the value of international assets and liabilities in the second quarter. The Canadian dollar appreciated strongly against most major currencies, in sharp contrast to its depreciation in the previous quarter. In the second quarter, the Canadian dollar gained 8.5% against the U.S. dollar, 5.6% against the Japanese Yen, and 2.7% against the Euro, while losing 5.4% against the British Pound. This resulted in a $71.6 billion decline in the value of foreign currency denominated international assets and a $40.1 billion reduction in the value of international liabilities, some of which are denominated in foreign currencies. The overall effect was a $31.5 billion decline in Canada's net international investment position.
Net portfolio liability position widens on non-resident investment in Canadian securities
Current transactions also contributed to the deterioration in the net international investment position, as liabilities outpaced assets by $12.1 billion. Non-resident investors added $18.9 billion of Canadian assets to their portfolios, with substantial purchases of Canadian bonds in the second quarter. On the other hand, Canadian investment abroad was well below levels prior to mid-2007, amounting to $6.8 billion. The resulting net inflow of funds from abroad was in line with a larger current account deficit in the quarter, the third since the economy contracted in the fourth quarter of 2008.
Net asset position on direct investment narrows on revaluation of assets
Canada's net asset position on direct investment narrowed to $121.5 billion at the end of the second quarter. With minimal direct investment activity, the appreciating Canadian dollar reduced foreign currency denominated direct investment assets. The value of Canadian direct investment abroad declined $28.3 billion (-4.3%) in the second quarter.
Chart G.2 Direct investment position
Description for Chart G.2
Canadian bond liabilities up sharply in the quarter
Non-residents continued their acquisition of Canadian bonds during the quarter (+$30.7 billion), while also increasing their holdings of equity, and money market investments. The revaluation effect of the increase in the Canadian dollar removed $21.0 billion from the value of Canadian bond liabilities denominated in foreign currencies.
On the other hand, Canadian investors lost $21.5 billion on downward foreign currency revaluations, while adding $2.1 billion to their holdings through acquisitions of foreign securities in the second quarter.
The appreciation of the Canadian dollar moderates the gains in foreign equity markets
Canada's overall net international investment position can also be calculated with portfolio investment assets and liabilities of tradable securities valued at market prices. By this measure, Canada also generated a net foreign debt position of $3.1 billion in the second quarter, from a net asset position in the previous quarter. Canadian assets declined 0.5% to $1,690.1 billion and liabilities rose 1.8% to $1,693.2 billion.
Although Canadian equity markets rallied more strongly than global equity markets during the quarter, Canadian investor's foreign equity assets were up by more than the value of foreign holdings of Canadian equities as a result of the larger size of foreign equity assets. Nevertheless, the rise in foreign equity assets was reduced by $18.2 billion as a result of the appreciation of the Canadian dollar during the quarter
Statistical table
