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Canada's international investment position

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Fourth quarter 2008 (Previous release)

Following a trend to reduced net foreign debt since the mid-1990s, Canada recorded a net asset position of $13.5 billion in the fourth quarter of 2008 — the first net asset position in this time series which dates back to 1926. The value of its international assets increased sharply in relation to its international liabilities. This resulted largely from a substantial depreciation in the Canadian dollar. Foreign currency-denominated assets, expressed in Canadian dollars, appreciated sharply from the drop in the Canadian dollar. The value of Canadian direct investment abroad alone increased $72.0 billion in the fourth quarter.

Canada records net international asset position

The net asset position arose in the fourth quarter as the Canadian dollar depreciated against most major foreign currencies except the British pound. It depreciated 12.6% against the US dollar, 11.7% against the Euro, 25.4% against the Japanese Yen, but gained 6.4% against the British Pound. The exchange rate effect on Canadian assets more than offset the first balance of payments current account deficit since the second quarter of 1999, and a substantial divestment of foreign securities by Canadian institutional investors in the fourth quarter of 2008.

Canada's net investment position had been moving in this direction for some years, buoyed by a long string of current account surpluses. These surpluses were accompanied by strong gains in both Canadian direct investment abroad and Canadian portfolio investment abroad.

Note to readers

The international investment position presents the value and composition of Canada's foreign assets and liabilities to the rest of the world. Canada's net international investment position is the difference between these foreign assets and liabilities. 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. The valuation of the assets and liabilities in the international investment position are measured at book value, unless otherwise stated. Book value represents the value of assets and liabilities recorded in the books of the enterprise in which the investment is made.

Currency valuation

The value of assets and liabilities denominated in foreign currency are 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 dollar is depreciating.

International asset values rise sharply

International assets rose significantly (+11.8%) in the fourth quarter of 2008 to reach $1,493.1 billion, while international liabilities also were up (+6.0%), reaching $1,479.5 billion. The substantial drop in the value of the Canadian dollar added $149.7 billion to Canada's international assets and $73.0 billion to Canada's liabilities. In addition, investment flows led to increases of $11.8 billion in liabilities and a marginal decrease of $0.6 billion in international assets, as Canadian institutional investors shed foreign securities. These factors combined to add $74.4 billion to Canada's international investment position, generating the net asset position.

Chart 1

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Canadian direct investment abroad leads the gains in international assets

Canada's net asset position on direct investment reached a high of $128.1 billion at the end of 2008, more than doubling the net asset position of the previous quarter. The value of Canadian direct investment abroad was up $72.0 billion (+12.3%). The lion's share of the increase was due to the revaluation effect of the large depreciation of the Canadian dollar, with outward direct investment transactions at $11.6 billion in the quarter.

Chart 2

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In contrast, foreign direct investment in Canada, where the value is unaffected by currency fluctuations, was up only $5.8 billion to $530.7 billion.

Exchange rate effects offset Canadian divestment in securities

In the context of turmoil in financial markets, Canadian investors reduced their foreign assets by $21.2 billion of debt and equity, an amount which ended 29 years of outward annual investment. Despite this large divestment, the value of Canada's portfolio assets abroad increased by 8.6%, as the drop in the Canadian dollar added $52.1 billion to the year-end position.

Non-residents increased their positions in Canadian bond and money market liabilities while decreasing their holdings of Canadian stocks. The revaluation effect of the drop in the Canadian dollar more than offset overall divestment by non-residents in Canadian portfolio instruments.

Gains in the market value portfolio asset positions further add to the net asset position

Canada's overall net international investment position can also be calculated with portfolio investment assets and liabilities of tradable securities valued at market prices. The net asset position in the fourth quarter was more pronounced when taking into account the market value estimates for portfolio investment positions. The revaluation effect of the depreciation in the Canadian dollar on the difference between the book value and market value estimates of Canadian holdings of foreign equity assets was significant in this regard. In addition, the global equity market downturn in October of 2008 resulted in the prices of Canadian stocks held by non-residents decreasing by more than the prices of foreign stocks held by Canadians.

By this measure, the net international investment generated a net asset position of $50.1 billion in the fourth quarter of 2008, as Canadian assets reached $1,674.8 billion compared with liabilities of $1,624.7 billion. This arose largely from the value of Canadian stocks held by non-residents declining by 24.1%, in comparison to a much smaller decrease (-11.8%) in the value of foreign stocks held by Canadians.

Foreign currency deposits also boost the net asset position

Other foreign assets also increased (+14.3%), mostly arising from Canadian foreign currency deposits. Other Canadian liabilities, largely foreign currency deposits, also rose sharply (+12.1%).

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

Definitions, data sources and methods: survey number 1537.

The fourth quarter 2008 issue of Canada's International Investment Position (67-202-XWE, free) will be available soon.

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

Table 1

Canada's international investment position at period end
  Fourth quarter 2005 Fourth quarter 2006 Fourth quarter 2007 First quarter 2008 Second quarter 2008 Third quarter 2008 Fourth quarter 2008
  $ billions
Canadian direct investment abroad 455.2 530.0 514.5 560.4 560.4 586.8 658.8
Portfolio investment abroad              
Foreign bonds 82.4 124.4 136.7 144.5 142.3 139.4 144.8
Foreign bonds at market value 88.9 134.0 154.5 169.4 164.5 166.5 180.4
Foreign stocks 197.2 227.9 210.1 227.4 226.9 228.9 259.0
Foreign stocks at market value 445.7 583.6 557.0 525.6 508.7 457.0 403.0
Foreign money market 13.1 20.0 7.5 7.6 7.1 6.6 3.5
Foreign money market at market value 13.1 20.1 7.5 7.7 7.1 6.6 3.5
Other investments              
Loans 46.1 72.4 76.1 85.5 87.0 82.2 93.7
Deposits 120.8 131.4 156.9 176.8 183.7 196.5 225.5
Official international reserves 38.0 41.0 40.6 43.6 45.0 45.5 51.3
Official international reserves at market value 38.4 40.9 40.7 44.2 44.7 45.7 53.4
Other assets 47.0 45.0 42.0 46.3 46.8 49.2 56.4
Total assets              
At book value 999.8 1,191.9 1,184.4 1,292.1 1,299.2 1,335.2 1,493.1
With portfolio investment at market value 1,255.2 1,557.3 1,549.2 1,615.8 1,602.9 1,590.6 1,674.8
Foreign direct investment In Canada 395.2 437.8 500.9 509.9 515.5 524.9 530.7
Portfolio investment              
Canadian bonds 384.2 408.1 382.1 404.6 421.8 423.3 449.2
Canadian bonds at market value 410.9 432.3 397.4 426.2 433.2 435.3 463.6
Canadian stocks 93.5 97.0 82.7 84.0 86.1 83.6 82.7
Canadian stocks at market value 273.3 345.0 327.8 320.1 352.5 281.0 213.4
Canadian money market 20.8 24.5 22.0 18.8 21.4 23.7 34.9
Canadian money market at market value 20.9 24.7 22.2 18.9 21.5 23.8 35.0
Other investment              
Loans 42.7 52.6 53.0 56.5 50.2 52.8 58.1
Deposits 201.0 226.8 243.5 269.2 251.8 261.9 300.6
Other liabilities 21.8 22.5 25.3 25.8 26.0 25.9 23.3
Total liabilities              
At book value 1,159.2 1,269.2 1,309.4 1,368.8 1,372.7 1,396.2 1,479.5
With portfolio investment at market value 1,365.9 1,541.6 1,570.1 1,626.6 1,650.7 1,605.7 1,624.7
Net international investment position              
At book value -159.5 -77.3 -125.0 -76.7 -73.5 -60.9 13.5
With portfolio investment at market value -110.7 15.6 -20.8 -10.7 -47.7 -15.0 50.1
The sum might not equal the total because of rounding.