Canada's international investment position, second quarter 2013
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Canada's net foreign debt declined by more than half in the second quarter to $103.7 billion, the lowest level since 2007. This mainly reflected the impact of lower Canadian stock markets on the value of Canada's international liabilities as well as the revaluation effect of a weaker Canadian dollar on international assets and liabilities.
International assets increase on a weaker Canadian dollar
Canada's international assets increased $59.3 billion to $2,574.2 billion by the end of the second quarter. The depreciation of the Canadian dollar against most major currencies resulted in a $65.9 billion upward revaluation of foreign currency denominated international assets. The Canadian dollar lost 3.4% against the US dollar, 4.9% against the Euro, and 3.5% against the British pound over the quarter. Overall, losses in foreign financial markets moderated the increase in international assets.
International liabilities down on lower Canadian stock markets
Canada's international liabilities decreased $63.1 billion in the second quarter, mainly because of declines on Canadian stock markets. However, upward revaluations of foreign currency denominated liabilities of $20.0 billion, as well as investment inflows from abroad, moderated the overall decrease in international liabilities.
Canada's net liability portfolio position declines
Canada's net liability position on securities declined for a third straight quarter to $305.8 billion by the end of June. This was largely because of a $27.9 billion increase in Canadian holdings of foreign securities, led by the upward revaluation of foreign currency denominated instruments. Capital gains on foreign stock markets, mainly in the United States, were offset by losses in foreign bond markets as yields were up during the quarter.
The decrease in non-resident holdings of Canadian securities further reduced the net liability portfolio position in the quarter. Foreign holdings were down $16.2 billion to $1,268.3 billion, led by lower Canadian stock and bond prices. The reduction was partly offset by an upward revaluation of foreign currency denominated liabilities.
Canada's net asset position on direct investment increases
The net asset position on direct investment reached $84.1 billion in the second quarter, a level not seen since 2007 before the onset of global credit concerns.
The value of Canadian direct investment abroad increased $20.8 billion to $1,055.2 billion by the end of the second quarter. The revaluation effect of a weaker Canadian dollar was the largest contributor to the gain, but this was slightly tempered by losses in non-US foreign equity markets.
The value of foreign direct investment in Canada was down by $48.3 billion to $971.1 billion. This decline, related to lower Canadian equity prices during the quarter, was moderated by direct investment inflows of $11.8 billion.
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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