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Chief, Balance of Payments Division (613-951-1872)
In particular, this was the case for mortgages and securities derived from them.
This was likely a reflection of relatively more prudent lending activities in Canada than in some other countries.
Canada, along with the U.S. and Australia, tended to have equity making up between 60-90% of foreign investments from 2001-2008. In contrast, other countries were less exposed to foreign equity markets, with Japan between 15% and 25% and the UK below 50% (Source: IMF Co-ordinated Portfolio Investment Survey).
Data from the quarterly Financial Flow Accounts, quarterly National Balance Sheet Accounts and quarterly Income and Expenditure Accounts (for GDP) are also referenced in this note.
The initial impact of concerns about exposure to US sub-prime mortgages was to freeze the market for asset-backed securities (ABS). Some of these securities were exposed to sub-prime mortgages, which were suddenly viewed as toxic by investors. The turmoil also affected Canadian financial markets. In Canada, after three years of steady growth, the market for asset-backed commercial paper (ABCP) shrank by almost $10 billion in the fourth quarter of 2007, and continued to contract every quarter in 2008.
This note only takes into account cross-border flows as they relate to Canada. Therefore, only foreign investors’ transactions in Canadian securities are considered.
The Canadian dollar depreciated against most major foreign currencies except the British pound. It depreciated 12.6% against the US dollar, 11.7% against the Euro, 25.4% against the Japanese Yen, but gained 6.4% against the British Pound.
Higher holdings of foreign securities increased exposure to changes in the exchange rate, as occurred during the commodity price boom after 2003 (when the dollar rose above parity with the US dollar) and its bust in the second half of 2008 (when the dollar quickly retreated to near US80 cents).
The TSX index fell 23.5% in the fourth quarter of 2008.
The supply of sovereign debt to support fiscal measures, not only in Canada but worldwide, increased significantly in 2009 and 2010.