Canada's international investment position, first quarter 2015
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Canada's net international investment position increased by $87.2 billion in the first quarter to a record net asset position of $224.3 billion, despite an expanded balance of payments current account deficit. This growth was mainly explained by the larger revaluation effect of a weaker Canadian dollar on international assets than liabilities.
Most of Canada's international assets are denominated in foreign currencies, while less than half of Canada's international liabilities are in foreign currencies. The Canadian dollar lost 8.4% against the US dollar, 3.8% against the British pound and 8.4% against the Japanese yen, while it gained 3.1% against the euro.
Since the economic downturn of 2008, both international assets and international liabilities have been on an upward trend. In the last two years, the weakening of the Canadian dollar, combined with generally higher equity prices in the United States than in Canada, resulted in international assets increasing by more than international liabilities. Canada has correspondingly shifted from a net debtor to a net creditor nation.
International assets increase on weaker Canadian dollar
Canada's international assets increased by $298.9 billion to $3,627.7 billion in the first quarter. The Canadian dollar depreciated against most major currencies, which led the gain in the value of international assets in the quarter. The performance of foreign equity markets, led by European markets, also contributed to the advance.
Canadian holdings of foreign assets have recovered since the financial crisis sell-off and capital losses. Holdings have doubled since 2008, mainly on the strength of portfolio equities, attributable to both investment and foreign stock market gains.
International liabilities up on Canadian bonds
Canada's international liabilities were up by $211.7 billion to $3,403.4 billion in the first quarter. The increase was mainly the result of the effect of the depreciation of the Canadian dollar on foreign denominated liabilities. Net inflows of funds into Canada, mainly in the form of foreign acquisitions of Canadian bonds, also added to the advance in international liabilities.
The increase in international liabilities is reflected in Canada's gross external debt, the measure of a country's stock of debt instruments held by foreign creditors. Despite the overall improvement in Canada's balance sheet with the rest of the world over the last two years, Canada's gross external debt increased by $474.4 billion to $1,907.2 billion. This advance was almost all in corporate debt instruments as foreign holdings of government debt instruments edged up by $8.4 billion during this two-year period.
Net direct investment asset position increases
Canada's net direct investment asset position was up for the third straight quarter to reach $330.9 billion in the first quarter, as outward direct investment increased by more than inward direct investment. This change reflected a weakening Canadian dollar as well as strengthened foreign stock markets relative to Canadian equity prices.
Canadian direct investment abroad increased by $125.7 billion to $1,444.5 billion and foreign direct investment in Canada edged up $22.9 billion to $1,113.6 billion, despite lower cross-border investment flows in the quarter. The increase in foreign direct investment in Canada followed two quarters of decline, which were attributable to lower Canadian equity prices.
Net foreign liability position on portfolio investment eases further
Canada's net foreign liability on portfolio investment was down for a third straight quarter, as Canadian holdings of foreign securities increased by more than foreign holdings of Canadian securities. The net liability position of $117.3 billion in the first quarter was the lowest level since the first quarter of 2008.
The value of foreign securities held by Canadian investors was up by $136.7 billion to $1,499.4 billion in the first quarter. This increase reflected the impact of the depreciating Canadian dollar on these assets, as well as the performance of non-US foreign equity markets, led by European markets. A slight decline in US equity prices as well as a divestment in foreign securities by Canadian investors in the quarter moderated the overall gains in Canadian holdings of foreign securities.
Foreign holdings of Canadian securities were up by $116.5 billion to $1,616.8 billion. Canadian bonds accounted for the bulk of this increase, with holdings up by $107.0 billion to $977.8 billion. Record acquisitions of $41.4 billion by non-residents as well as the revaluation effect of the weaker Canadian dollar on foreign currency denominated Canadian bonds and higher bond prices all contributed to the increase. Long-term interest rates in Canada were down by a significant 46 basis points in the quarter.
Note to readers
The main measure of the International Investment Position Account now incorporates market valuation for tradable securities and foreign direct investment equity. This 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 annual foreign direct investment release includes geographical and industry details. For more information, see "Valuation of assets and liabilities."
The value of assets and liabilities denominated in foreign currency is 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.
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 Canada's assets and liabilities to the rest of the world.
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.
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To enquire about the concepts, methods or data quality of this release, contact Komal Bobal (613-716-7850; email@example.com), International Accounts and Trade Division.
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