Canada's international investment position, fourth quarter 2018
Fourth quarter 2018
Canada's net foreign asset position decreased by $109.1 billion to $528.6 billion in the fourth quarter, after reaching a record high of $637.7 billion at the end of the third quarter. The decline mainly reflected the weaker performance of foreign stock markets relative to the Canadian stock market, which lowered the value of Canada's international assets in equity instruments by more than international liabilities. The revaluation effect (+$150.4 billion) due to the depreciating Canadian dollar in the quarter moderated the overall decline.
Over the quarter, the Canadian stock market declined 10.9%, while the US stock market decreased 14.0% and the European stock market contracted by 11.7% (as measured by the Standard and Poor's 500 and the EuroStoxx 50).
Meanwhile, the Canadian dollar depreciated 5.1% against the US dollar, 3.8% against the euro, 3.2% against the British pound and 8.1% against the Japanese yen.
On a geographical basis, Canada's net asset position with the United States decreased by $78.7 billion to reach $89.1 billion at the end of the fourth quarter. At the same time, Canada's net asset position with countries other than the United States totalled $439.5 billion, down $30.4 billion from the third quarter.
Despite the decline in the fourth quarter, Canada's net foreign asset position increased by $86.8 billion in 2018. The growth was mainly attributable to the revaluation of the international assets and liabilities denominated in foreign currencies (+$195.4 billion), as the Canadian dollar depreciated against all major foreign currencies over the year. Net borrowings of $48.9 billion from abroad to finance the current account deficit moderated the increase.
At the end of 2018, 61% of Canada's international assets were denominated in US dollars, followed by the euro (9%), the British pound (6%) and the Canadian dollar (4%). In comparison, 57% of Canada's international liabilities were denominated in Canadian dollars followed by the US dollar (32%), the euro (5%) and the British pound (2%).
Canada's international assets and liabilities down on lower stock market prices
Canada's international assets were down $175.4 billion to $4,958.1 billion at the end of the fourth quarter, following four consecutive quarterly increases. At the same time, Canada's international liabilities declined by $66.3 billion to $4,429.5 billion. These decreases were largely attributable to the decline in foreign and Canadian stock prices. The upward revaluation due to the depreciation of the Canadian dollar and cross-border investments moderated the decline in assets and liabilities.
Canada's gross external debt, or the value of Canadian debt instruments held by foreign investors, rose by $129.9 billion to $2,691.1 billion at the end of the fourth quarter. The growth was mainly in the banking sector, as foreign currency deposits held by non-residents at Canadian banks increased.
Portfolio investment grows markedly
The composition of Canada's international assets and liabilities has evolved over the years. Since the global financial crisis of 2008, the value of Canadian holdings of foreign securities has more than tripled to $2,096.1 billion at the end of 2018. Canadian portfolio investment abroad accounted for 42% of Canada's total international assets in 2018 compared with 31% at the end 2008. Portfolio investment has now surpassed direct investment as the main component of Canada's international assets.
Foreign holdings of Canadian securities have always been an important component of Canada's international liabilities. These holdings reached $2,189.1 billion and accounted for almost 50% of Canada's total international liabilities at the end of 2018, up from a 39% share a decade earlier. Meanwhile, the share of direct investment accounted for 30% of total international liabilities, down from a 40% share at the end of 2008.
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. 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.
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.
The article "Currency composition of Canada's international investment position," part of Latest Developments in the Canadian Economic Accounts (13-605-X), is available.
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.
The updated Canada and the World Statistics Hub (13-609-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.
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; email@example.com), International Accounts and Trade Division.
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