Canada's international investment position, third quarter 2013
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Canada's net foreign debt fell by $41.1 billion to $66.2 billion by the end of the third quarter, marking a third consecutive quarterly decline despite an ongoing current account deficit. The decline in the third quarter mainly reflected the impact of stronger foreign equity markets, which pushed up the value of Canada's international assets more than that of international liabilities. These gains were moderated by the downward revaluation effect of a stronger Canadian dollar on international assets and liabilities.
International assets outpace international liabilities, led by stronger foreign markets
Canada's international assets increased $86.4 billion to $2,667.0 billion by the end of the third quarter. Capital gains led the increases, reflecting the performance of foreign stock markets. However, asset increases were moderated by currency fluctuations and banking transactions. The appreciation of the Canadian dollar against some major currencies resulted in a downward revaluation of international assets that are denominated in foreign currency. Over the quarter, the Canadian dollar gained 2.1% against the US dollar and 1.2% against the Japanese yen, and lost 4.1% against the British pound and 1.8% against the Euro. The repatriation of $18.3 billion of currency and deposit assets held abroad reduced international assets.
Canada's international liabilities increased $45.3 billion in the third quarter, reflecting ongoing foreign investment in the Canadian corporate sector as well as an increase in Canadian stock prices. However, the downward revaluation of liabilities that are denominated in foreign currencies moderated the overall increase in Canadian international liabilities.
Canada's net liability position on portfolio investment declines further
Canada's net liability position on securities declined for a fourth straight quarter, to $285.1 billion at the end of the third quarter. The increase in Canadian holdings of foreign securities, which almost doubled the increase of foreign holdings of Canadian securities, was led by gains in foreign stock markets. The increase in Canadian liabilities was accounted for by a rebound in Canadian stock prices and non-resident acquisitions of Canadian equities, but was moderated by a decline in Canadian bond prices.
Canada's net asset position on direct investment increases again
The net asset position on direct investment increased $38.1 billion to $118.6 billion at the end of the quarter.
The value of Canadian direct investment abroad increased $65.9 billion to $1,124.6 billion by the end of the third quarter. The growth in foreign equity prices was the largest contributor to this change. Capital injected into direct investment enterprises abroad also contributed to the increase. However, the appreciation of the Canadian dollar relative to select foreign currencies moderated these gains.
On the other side of the ledger, the value of foreign direct investment in Canada advanced $27.7 billion to $1,006.1 billion. This reflected the appreciation of Canadian equity prices, following the previous quarter's decline, as well as direct investment inflows of $10.4 billion.
Note to readers
The main measure of the International Investment Position Account 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 international investment position 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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