Canada's international investment position, first quarter 2013
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Canada's net foreign debt declined $70.8 billion in the first quarter to $231.3 billion. This mainly reflected the impact of higher foreign stock markets on the value of Canada's foreign assets, which more than offset the borrowing requirements in the quarter related to Canada's current account deficit.
Strengthened foreign stock markets push international assets higher
Canada's international assets increased by $113.9 billion to $2,506.4 billion by the end of the first quarter. This was led by the strength of foreign stock markets, resulting in a large upward revaluation of Canadian holdings of foreign equity. The net effect of exchange rate fluctuations contributed an additional $16.3 billion to the value of foreign currency denominated international assets, as the Canadian dollar lost 2.0% against the US dollar during the quarter. Canadian investment in foreign markets also added to international assets in the quarter.
Investment inflows from abroad, coupled with higher prices on Canadian stock markets, accounted for the $43.2 billion in increase in Canada's international liabilities during the first quarter to $2,737.7 billion.
Canada's net liability position on securities down on foreign stock market gains
Canada's net liability position on securities declined $50.9 billion to by $350.0 billion in the first quarter. This was largely a result of a $71.3 billion increase in Canadian holdings of foreign equity, led by capital gains. To a large extent this reflected the 10.0% increase in the US stock market in the first quarter, where over half of all foreign equities are held. Other foreign stock markets also advanced in the quarter, most notably Japan (+21.0%).
These asset increases were partly offset by higher foreign holdings of Canadian securities, up $20.5 billion in the first quarter to $1,284.9 billion. Non-resident investors' acquisitions of Canadian bonds were moderated by a reduction in their holdings of money market instruments, as well as by sales of equities. Overall, foreign holdings of Canadian equities edged up, reflecting higher Canadian share prices in the quarter.
Inward and outward direct investment positions remain largely in balance
Following a decade of a net direct investment asset position up to 2007, Canadian direct investment abroad and foreign direct investment in Canada have generally converged in the post financial crisis and recession period. In the first quarter of 2013, the balance returned to a small net asset position.
The value of Canadian direct investment abroad increased $44.6 billion to $1,031.5 billion by the end of the first quarter, mainly as a result of gains on international stock markets. The remainder of the increase was divided between Canadian investment activity in the quarter and the upward revaluation effect of a weaker Canadian dollar on these foreign currency denominated assets.
In turn, the value of foreign direct investment in Canada rose by $31.0 billion to $1,018.4 billion. Direct investment inflows to Canada added $18.6 billion to the position, with the balance accounted for by higher Canadian equity prices.
Note to readers
The main measure of the International Investment Position Account (IIP) now incorporates market valuation for tradeable securities and foreign direct investment equity. This presentation adds a further dimension to the analysis of Canada's net international investment position and more accurately reflects changes in that position. The IIP at book value is still available, as the link to the annual foreign direct investment release includes geographical and industry details. For more information please see Valuation of assets and liabilities.
The international investment position presents the value and composition of Canada's 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 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 Canadian dollar is depreciating.
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