Canada's international investment position, third quarter 2016
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Third quarter 2016
Canada's net foreign asset position increased by $31.5 billion in the third quarter to $115.3 billion, following two quarters of decline. Canada's international assets have now exceeded international liabilities for eight straight quarters.
The growth in Canada's international assets outpaced that of international liabilities, mainly due to the upward revaluation effect of a depreciating Canadian dollar during the quarter. A depreciation of the Canadian dollar increases the value of Canada's international assets by more than liabilities, as most of the assets are denominated in foreign currencies, compared with less than half of the liabilities. The Canadian dollar lost 1.5% against the US dollar, 2.7% against the euro and 3.3% against the Japanese yen in the third quarter, while it gained 1.1% against the British pound.
The general increase in equity prices also contributed to the growth in the net foreign asset position, as unrealized capital gains on Canada's international assets were higher than on liabilities. However, net borrowings from abroad to finance the current account deficit moderated the overall increase in the quarter.
Canada's international assets rise on higher foreign stock prices
Canada's international assets were up by $198.7 billion to $4,109.5 billion at the end of the third quarter. This mainly reflected higher prices in most major foreign stock markets. Cross-border investment and the upward revaluation effect of the depreciating Canadian dollar against most major foreign currencies also contributed to the increase.
On an instrument basis, the bulk of the growth in international assets was in equity instruments; these holdings increased by $170.8 billion compared with $27.9 billion for debt instruments. About two-thirds of Canada's international assets were in the form of equity instruments at the end of the quarter.
By type of investment, portfolio and direct investment assets were the main contributors to the increase in the third quarter. Canadian holdings of foreign securities increased by $93.6 billion to $1,689.1 billion, while direct investment assets rose by $90.7 billion to $1,602.6 billion. For foreign securities, the largest increases were in the United States, Europe (mainly France and Germany) and Japan. At the same time, other investment assets were up $11.8 billion to $707.4 billion.
Canada's international liabilities advance on strong foreign investment and higher equity prices
Canada's international liabilities rose by $167.2 billion to $3,994.2 billion in the third quarter. Canadian equity instruments held by foreign investors were up $87.1 billion, mainly as a result of higher stock prices. Over 40% of Canada's international liabilities were in the form of equity instruments. The Standard and Poor's/Toronto Stock Exchange Composite Index gained 4.7% over the quarter.
Canadian debt instruments, also referred to as Canada's gross external debt, grew by $80.1 billion to $2,289.0 billion at the end of the quarter. Foreign portfolio investment, mainly in the form of Canadian bonds, accounted for most of this increase.
Since the economic downturn of 2008-2009, sustained foreign acquisitions of Canadian bonds have led the growth in Canada's international liabilities. As a result, portfolio investment now represents almost 50% of Canada's total international liabilities compared with less than 40% at the end of 2008. In comparison, the share of direct investment liabilities declined from 40% to 33% during the same period, while the share of other investment liabilities, mainly deposits, was down slightly.
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.
The User Guide: Canadian System of Macroeconomic Accounts (13-606-G) is also available. This publication will be updated to maintain its relevance.
For more information, contact us (toll-free 1-800-263-1136; 514-283-8300; STATCAN.infostats-infostats.STATCAN@canada.ca).
To enquire about the concepts, methods or data quality of this release, contact Marie-Josée Lamontagne (613-790-8463; firstname.lastname@example.org), International Accounts and Trade Division.
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