Canada's international investment position, first quarter 2021
First quarter 2021
Canada's net foreign asset position continued its upward trend in the first quarter, increasing by $39.0 billion to reach an unprecedented level of $1,390.5 billion.
Overall, changes in market prices led to a $122.0 billion increase in Canada's net foreign asset position in the first quarter. Major stock markets recorded gains in the first quarter. The Canadian stock market grew by 7.3%, outpacing its American counterpart, which was up 5.8%. Meanwhile, the European stock market rose by 10.3%, and the Japanese stock market was up 6.3%. Since equity instruments make up a greater share of Canada's international assets (72.2%) than its international liabilities (43.1%), stock price fluctuations tend to have a greater impact on the value of the assets.
The revaluation effect from fluctuations in exchange rates (-$91.7 billion) lowered the value of assets by more than the value of liabilities, moderating the overall increase in Canada's net foreign asset position. Over the first quarter, the Canadian dollar appreciated against all major foreign currencies: it gained 1.2% against the US dollar, 5.8% against the euro and 0.3% against the UK pound sterling. At the end of this quarter, 96.5% of Canada's international assets were denominated in foreign currencies, compared with 37.7% of its international liabilities.
On a geographical basis, Canada's net foreign asset position with the United States was up $64.3 billion to reach $708.2 billion. In contrast, Canada's net foreign asset position with countries other than the United States was down $25.4 billion to $682.3 billion.
Since the end of the first quarter of 2020, which was marked by uncertainty and volatility on global financial markets at the onset of the pandemic, Canada's net foreign asset position has been steadily growing. In the past year, higher market prices were consistently the main contributor to the increase, while the revaluation effect resulting from the strengthening of the Canadian dollar always had a moderating effect.
From the first quarter of 2020 to the first quarter of 2021, Canada's net foreign asset position increased by over half a trillion dollars (+$523.7 billion) on the strength of market prices (+$852.3 billion). The appreciating Canadian dollar moderated the overall growth (-$316.2 billion), as did net borrowings from the financial account (-$23.7 billion), though on a much lower scale.
Canada's international assets and liabilities up on higher market prices
Canada's international assets were up by $119.8 billion to a record high of $6,722.1 billion at the end of the first quarter. The upward revaluation attributable to market price changes (+$242.5 billion) led the increase. However, the downward revaluation (-$122.9 billion) resulting from the fluctuations in exchange rates moderated the overall growth.
On the other side of the ledger, Canada's international liabilities were up $80.8 billion to $5,331.7 billion, also on higher market prices (+$120.5 billion). The downward revaluation (-$31.2 billion) coming from the fluctuations of the Canadian dollar against foreign currencies, as well as the decrease in foreign borrowings, mainly in the form of currency and deposits, partially offset the overall increase.
Government sector's gross external debt decreases for the first time since the end of 2019
Canada's gross external debt, or the value of Canadian debt instruments held by foreign investors, was down by $112.8 billion to $3,036.2 billion in the first quarter in market value terms. It represented 125.8% of Canada's gross domestic product, a proportion close to the pre-pandemic level of 123.8% recorded at the end of 2019. During the year 2020, this proportion surged and reached an all-time high of 151.2%. The financial sector, largely deposit-taking corporations, was one of the main contributors to the decline in the first quarter (-$88.9 billion).
For the first time since the end of 2019, the government sector's gross external debt decreased (-$29.6 billion), and it totalled $555.4 billion at the end of the first quarter. A decline in foreign holdings of debt securities in the form of bonds (-$15.8 billion) and money market instruments (-$13.4 billion) contributed to the contraction. While the decline in money market instruments was mainly attributable to net retirements, the decrease in bonds was mostly due to the valuation changes resulting from higher interest rates, as well as the appreciating Canadian dollar.
Note to readers
The international investment position is 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 international assets can be referred to as Canada's net foreign debt. An excess of international assets over international liabilities can be referred to as Canada's net foreign assets.
Foreign direct investment is presented on an asset–liability principle basis (that is, a gross basis) in the international investment position. Foreign direct investment can also be presented on a directional principle basis (that is, a net basis), as shown in supplementary foreign direct investment tables 36-10-0008-01, 36-10-0009-01 and 36-10-0659-01. 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 liabilities.
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