Canada's international investment position, second quarter 2016
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Second quarter 2016
Canada's net foreign asset position decreased by $106.8 billion in the second quarter to $149.0 billion. This was the second consecutive quarter of significant decline. Growth in Canada's international liabilities exceeded that of international assets, resulting in a decrease in Canada's net foreign asset position. In the first half of 2016, Canada's net asset position fell by $336.0 billion, following a record high at the end of 2015.
The stronger performance of the Canadian stock market relative to most major foreign stock markets was the main contributor to the decrease in the net foreign asset position in the second quarter. Net borrowing from abroad to finance an ongoing current account deficit as well as the downward revaluation effect of the appreciation of the Canadian dollar against most major foreign currencies also contributed to the decline.
Strong cross-border investment activity pushes Canada's international assets up
Canada's international assets were up by $65.5 billion to $3,920.5 billion at the end of the second quarter. The increase mainly reflected strong cross-border investments and, to a lesser extent, higher US stock prices. The downward revaluation effect of an appreciating Canadian dollar against most major foreign currencies moderated the overall gain in foreign assets in the quarter. The Canadian dollar rose 0.5% against the US dollar, 8.5% against the British pound and 3.1% against the euro, but lost 7.8% against the Japanese yen.
Growth in international assets was widespread across all types of foreign assets in the second quarter. Direct investment assets increased by $13.9 billion to $1,532.9 billion, while portfolio investment assets rose by $21.7 billion to $1,594.9 billion. At the same time, other investment assets were up by $28.8 billion to $684.7 billion on stronger holdings of currency and deposits abroad.
On a geographical basis, Canada's exposure to US assets increased in the second quarter, continuing the upward trend observed in recent years. These assets represented 55% of all international assets at the end of June, compared with 47% five years ago. Over that period, US equity prices, as measured by the Standard and Poor's 500, rose 58.9%, while the Canadian dollar lost 25.3% against the US dollar.
Canada's international liabilities advance on strong foreign investment and higher equity prices
Canada's international liabilities were up by $172.3 billion to $3,771.5 billion in the second quarter. Strong foreign investment, mainly in the form of debt instruments, and higher equity prices both contributed to the increase. The appreciation of the Canadian dollar against most major foreign currencies moderated the overall growth in international liabilities in the quarter.
Holdings of direct equity instruments rose by $74.0 billion and those of portfolio equity instruments were up by $37.4 billion in the second quarter, mainly on higher Canadian equity prices. Over the quarter, the Standard and Poor's / Toronto Stock Exchange composite index gained 4.2%. At the end of June, equities represented 43% of Canada's total international liabilities, while the rest was held in the form of debt instruments.
Foreign holdings of Canadian debt instruments, also referred to as Canada's gross external debt, grew by $60.8 billion to $2,146.4 billion. Canadian debt securities held by foreign investors advanced $29.5 billion, led by acquisitions of Canadian bonds. Currency and deposits held in Canada by non-residents also rose, up by $27.5 billion. These increases were moderated by the downward revaluation effect of the stronger Canadian dollar.
Note to readers
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. An excess of international liabilities over assets can be referred to as Canada's net foreign debt. An excess of international assets over liabilities can be referred to as Canada's net foreign assets.
The Methodological Guide: Canadian System of Macroeconomic Accounts (13-607-X) is available from the Browse by key resource module of our website, under Publications.
The User Guide: Canadian System of Macroeconomic Accounts (13-606-G) is also available from the Browse by key resource module of our website, under Publications. This publication will be updated to maintain its relevance.
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