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Canada's international investment position, second quarter 2018

Released: 2018-09-13

Canada's net international investment position

$518.7 billion

Second quarter 2018

Canada's net foreign asset position decreased by $15.1 billion to $518.7 billion in the second quarter. This decline mainly reflected net borrowings of $10.4 billion from international financial transactions to finance the current account deficit during the quarter.

In addition to the net borrowings, the stronger performance of the Canadian stock market relative to other major stock markets, pushing the value of international liabilities up by more than international assets, also contributed to the decline. Over the quarter, the Canadian stock market increased 5.9% while the US stock market rose 2.9% and the European stock market increased 1.0%, as measured by the Standard and Poor's 500 and the EuroStoxx respectively.

Fluctuations of the Canadian dollar against other foreign currencies during the quarter resulted in limited changes in the value of Canada's international assets and liabilities, once foreign currency assets and liabilities are expressed in Canadian dollar terms. The Canadian dollar depreciated against the US dollar (-2.1%) but appreciated against all other major currencies, notably the UK pound sterling (+4.3%), the Euro (+3.3%) and the Japanese yen (+1.9%).

On a geographical basis, Canada's net asset position with the United States increased by $20.1 billion to $79.3 billion in the second quarter. At the same time, Canada posted a net foreign asset position with non-US countries as a whole of $439.4 billion, down $35.2 billion from the first quarter.

Chart 1  Chart 1: Canada's net international investment position
Canada's net international investment position

Chart 2  Chart 2: Contributors to the change in the net international investment position
Contributors to the change in the net international investment position

Canada's international assets reach the five-trillion dollar mark

Canada's international financial assets rose by $144.1 billion to $5,009.7 billion at the end of the second quarter. The increase was mostly due to higher foreign stock market prices. Net acquisitions of foreign financial assets of $35.3 billion also contributed to the increase in the quarter.

On an instrument basis, Canadian holdings of foreign direct and portfolio equity instruments increased by $92.6 billion to $3,557.0 billion in the second quarter, accounting for over 70% of all international assets. In addition to higher foreign stock prices, investment by Canadian direct investors in foreign affiliates also contributed to the growth. Meanwhile, Canadian holdings of foreign debt instruments were up by $51.5 billion to $1,452.7 billion, led by strong purchases of foreign bonds.

On a geographical basis, Canada's international assets held in the United States were up $122.0 billion to $2,712.1 billion, and those held in non-US countries increased by $22.1 billion to $2,297.6 billion at the end of the quarter. In addition to stock market prices, the depreciation of the Canadian dollar against the US dollar contributed to the growth in US assets. In the second quarter, 54% of Canada's total international assets were held in the United States, compared with a low of 46% at the end of 2009.

Canada's international liabilities increase on higher stock prices

Canada's international liabilities were up $159.2 billion to $4,490.9 billion in the second quarter. The increase mainly resulted from higher Canadian equity prices as well as cross-border investments of $45.6 billion.

On an instrument basis, Canadian equity instruments held by foreign direct and portfolio investors increased by $131.2 billion to $1,956.5 billion in the second quarter, mainly on higher equity prices. Equity instruments accounted for over 40% of all international liabilities.

Canada's gross external debt, or the value of Canadian debt instruments held by foreign investors, was up by $28.0 billion to $2,534.4 billion in the second quarter. The increase was mainly due to large foreign acquisitions of Canadian bonds as well as higher currency and deposits held by non-residents in Canada. The growth was all in the corporate sector as the government debt owed to non-residents declined in the quarter. Since the third quarter of 2013, the external debt of the corporate sector almost doubled, mainly on large borrowings of Canadian banks.

On a geographical basis, Canada's international liabilities held in the United States were up $102.0 billion to $2,632.8 billion. Meanwhile, Canada's international liabilities in non-US countries were up by $57.3 billion to $1,858.2 billion at the end of the second quarter.

Chart 3  Chart 3: Canada's gross external debt by sector
Canada's gross external debt by sector



  Note to readers

Currency valuation

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. 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.

Definitions

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.

Foreign direct investment is presented on an asset-liability principle basis (that is, gross basis) in the international investment position. Foreign direct investment can also be presented on a directional principle basis (that is, net basis), as shown in supplementary foreign direct investment tables (36-10-0008-01) and (36-10-0009-01).The difference between the two foreign direct investment conceptual presentations resides in the classification of reverse investment such as (1) Canadian affiliates' claims on foreign parents and (2) Canadian parents' liabilities to foreign affiliates. Under the asset/liability presentation, (1) is classified as an asset and included in direct investment assets, and (2) is classified as a liability and included in direct investment liability.

Products

The article, Currency composition of Canada's international investment position, part of Latest Developments in the Canadian Economic Accounts (Catalogue number13-605-X), is available.

The Methodological Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-607-X) is available.

The User Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-606-G) is also available. This publication will be updated to maintain its relevance.

The updated Canada and the World Statistics Hub (Catalogue number13-609-X) is available online. This product illustrates the nature and extent of Canada's economic and financial relationship with the world using interactive graphs and tables. This product provides easy access to information on trade, investment, employment and travel between Canada and a number of countries, including the United States, the United Kingdom, Mexico, China and Japan.

Contact information

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; marie-josee.lamontagne@canada.ca), International Accounts and Trade Division.

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