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Canada's international investment position, third quarter 2018

Released: 2018-12-13

Canada's net international investment position

$647.9 billion

Third quarter 2018

Canada's net foreign asset position increased by $116.1 billion to $647.9 billion in the third quarter. This increase mainly reflected the stronger performance of foreign stock markets relative to the Canadian stock market, pushing the value of international assets up by more than international liabilities. Over the quarter, the Canadian stock market lost 1.3% while the US stock market rose 7.2%, prior to the higher volatility observed on equity markets in the following weeks.

Over 70% of all of Canada's international assets were in the form of equity instruments at the end of the quarter, with US equities accounting for more than half of all foreign equities.

The appreciation of the Canadian dollar against all major foreign currencies moderated the increase in Canada's net foreign asset position by $65.7 billion. Over the third quarter, the Canadian dollar gained 1.7% against the US dollar, 2.3% against the euro, 2.9% against the United Kingdom pound sterling and 4.3% against the Japanese yen.

On a geographical basis, Canada's net asset position with the United States increased by $77.5 billion to $163.3 billion in the third quarter. At the same time, Canada posted a net foreign asset position with non-US countries of $484.6 billion, up $38.6 billion from the second quarter.

Since the end of the third quarter of 2016, Canada's net foreign asset position has increased by $538.7 billion. Fluctuations in equity prices largely contributed to the growth as movements in exchange rates (-$44.4 billion) and cumulative inflows of funds (-$96.6 billion) from ongoing current account deficits both reduced the overall net asset position. The growth in the US stock market (+34.4%) largely outpaced that of the Canadian stock market (+9.1%) over this two-year period.

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 increase led by foreign securities

Canada's international financial assets rose by $95.0 billion to $5,141.3 billion at the end of the third quarter. The increase was due to higher foreign equity prices and, to a lesser extent, financial account transactions. The appreciation of the Canadian dollar, which lowered Canada's international assets by $97.2 billion, moderated the overall growth.

The growth was mostly in foreign securities, for which holdings were up by $66.8 billion to $2,203.3 billion in the third quarter. US securities, led by non-financial corporate shares, accounted for the bulk of the increase. Direct investment assets increased by $32.5 billion. In addition to higher foreign equity prices, the highest outward mergers and acquisitions activity since the first quarter of 2017 also contributed to the gain.

Lower equity prices and a stronger Canadian dollar push Canada's international liabilities down

Canada's international liabilities were down $21.1 billion to $4,493.4 billion in the third quarter. The decrease was mainly attributable to lower Canadian equity prices and from the appreciation of the Canadian dollar, which lowered Canada's international liabilities by $31.5 billion. Foreign acquisitions of $61.0 billion during the quarter moderated the overall decline.

The value of Canadian equity instruments held by foreign direct and portfolio investors was down by $25.2 billion to $1,942.4 billion in the third quarter, mainly on lower direct investment holdings.

Canada's gross external debt, or the value of Canadian debt instruments held by foreign investors, was up by $4.1 billion to $2,551.0 billion. Inflows of funds in the form of short-term debt instruments (currency and deposits and money market securities) were largely offset by a downward revaluation of $31.7 billion from the appreciation of the Canadian dollar.

On a sector basis, the gross external debt of the government sector decreased by $6.6 billion in the third quarter, to $454.7 billion, a third consecutive quarterly decline. Foreign investors reduced their exposure to Canadian government bonds over this period, mainly federal government bonds.

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



  Note to readers

Revisions

This release incorporates statistical revisions back to the first quarter of 2015 as part of the annual revision exercise of the Canadian System of Macroeconomic Accounts. Revisions reflect the integration of new data sources as well as improved methodologies.

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 Vicky Gélinas (613-716-2828; vicky.gelinas@canada.ca), International Accounts and Trade Division.

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