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Canada's international investment position

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Second quarter 2009 (Previous release)

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.

Canada's international investment position

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 US 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.

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.

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.

Direct investment position

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.

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

Definitions, data sources and methods: survey number 1537.

The second quarter 2009 issue of Canada's International Investment Position (67-202-X, free) will be available soon.

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

Table 1

Canada's international investment position at period end
  Fourth quarter 2005 Fourth quarter 2006 Fourth quarter 2007 Fourth quarter 2008 First quarter 2009 Second quarter 2009
  $ billions
Assets            
Canadian direct investment abroad 452.2 524.7 515.4 637.3 654.9 626.6
Portfolio investment abroad            
Foreign bonds 82.3 124.0 135.4 141.9 144.7 136.8
Foreign bonds at market value 88.8 133.7 153.3 176.0 176.5 172.4
Foreign stocks 196.8 227.3 226.6 278.9 292.7 280.5
Foreign stocks at market value 445.0 582.2 603.8 451.6 424.3 469.5
Foreign money market 13.1 20.0 7.5 3.5 5.8 5.0
Foreign money market at market value 13.1 20.1 7.5 3.5 5.8 5.1
Other investments            
Loans 45.9 72.9 77.3 94.5 98.7 97.5
Deposits 120.8 132.2 157.9 225.2 227.6 212.5
Official international reserves 38.0 41.0 40.6 51.4 53.1 50.8
Official international reserves at market value 38.4 40.9 40.7 53.4 54.9 51.9
Other assets 47.2 45.9 37.9 53.5 56.8 54.6
Total assets            
At book value 996.4 1,188.1 1,198.6 1,486.2 1,534.2 1,464.3
With portfolio investment at market value 1,251.4 1,552.7 1,593.9 1,694.9 1,699.4 1,690.1
Liabilities            
Foreign direct investment in Canada 397.8 438.6 491.3 504.9 505.8 505.1
Portfolio investment            
Canadian bonds 387.9 409.2 384.7 454.1 472.9 483.3
Canadian bonds at market value 414.5 431.5 399.5 467.9 472.4 490.0
Canadian stocks 93.5 99.0 95.8 96.0 97.7 101.5
Canadian stocks at market value 271.4 318.7 371.0 241.7 237.1 288.6
Canadian money market 20.8 24.5 22.0 34.9 44.8 44.4
Canadian money market at market value 20.9 24.7 22.2 35.0 45.0 44.5
Other investment            
Loans 38.2 53.0 61.2 64.6 64.9 55.2
Deposits 201.0 226.8 243.5 301.2 313.7 286.3
Other liabilities 22.0 21.6 26.0 23.9 23.9 23.4
Total liabilities            
At book value 1,161.3 1,272.7 1,324.4 1,479.4 1,523.8 1,499.2
With portfolio investment at market value 1,365.8 1,514.9 1,614.7 1,639.1 1,662.7 1,693.2
Net international investment position            
At book value -164.9 -84.6 -125.7 6.7 10.4 -34.8
With portfolio investment at market value -114.4 37.7 -20.7 55.9 36.6 -3.1