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International investment position
Fourth quarter 2004
The decline in the value of Canada’s foreign assets and liabilities brought the nation’s net liability to non-residents to $190.8 billion at the end of the fourth quarter of 2004, down 1.3% from a quarter earlier. The declines were mostly attributable to a stronger Canadian dollar. On a year-end basis, net external liabilities (the difference between external assets and foreign liabilities) decreased by 12.5% compared to the level of $218.0 billion recorded at the end of 2003.
The value of international assets totalled $945.1 billion, down 1.0% from the third quarter. The combined effect of a stronger Canadian dollar and declines in loans and reserve assets explained most of this drop. The strength of the Canadian dollar, removed $19.5 billion from the value of these international assets during the fourth quarter more than offsetting the increase of $10.2 billion related to transactions.
At the same time, Canada's international liabilities declined $12.4 billion to $1,135.9 billion. Lower deposit and loan liabilities as well as the strong dollar were responsible for this decline. The appreciation of the dollar removed $14.8 billion from the value of the liabilities.
Net external liabilities at the end of December represented 14.4% of Canada’s gross domestic product, down from 14.8% in the third quarter. At the end of 2003, this ratio was 17.7%.
The Canadian dollar continued its appreciation towards the US dollar in the fourth quarter but lost ground against all other major currencies. For the year as a whole, the Canadian dollar gained 7.9% in value against its American counterpart, 2.9% against the Japanese yen and 0.5% against the pound sterling. However, almost no change was recorded vis à vis the Euro.
Canada's international investment position
Canadian direct investment abroad stable
Canadian direct investment abroad reached $438.4 at the end of December, virtually unchanged from the third quarter. The exchange rate revaluation, which removed $8.6 billion from the December position, was offset by transactions of $8.3 billion recorded during the fourth quarter.
Direct investment assets in the United States declined $6.1 billion to $191.2 billion, mostly due to the strengthening Canadian dollar. At the same time, the value of Canadian direct investment in all other countries increased to a record value of $247.3 billion.
On a year-end basis, the value of Canadian direct investment abroad increased $39.3 billion from 2003.
Holdings of foreign bonds significantly increased
Canadian holdings of foreign bonds significantly increased by 9.6% to $56.9 billion at the end of the fourth quarter after Canadians made their highest quarterly purchase of this instrument. Almost all of the increase was directed to US bonds.
The combination of low purchases of foreign stocks in the fourth quarter of 2004 and the rise of the Canadian dollar translated into a decline of $3.6 billion in Canadian holdings of this instrument to $180.4 billion, the lowest level since the end of 2000. Even the strong equity market in the United States didn’t encourage the investors to buy US stocks. The S&P 500 gained 8.7% during the fourth quarter.
On a year-end basis, Canadian holding of foreign bonds increased $12.3 billion from the end of 2003. Canadian demand for foreign bonds was strong during the entire year and Canadian investors strongly preferred foreign bonds to foreign stocks in 2004. The foreign portfolio position slightly increased to $237.3 billion at the end of 2004 from $233.5 billion a year earlier.
Canada's international reserves closed the year at $40.3 billion, the lowest level since the third quarter of 1999. All of the decrease was for reserves in US dollars. At the end of 2004, Canada’s international reserves of US dollars totalled $17.2 billion or 42.6% of Canada’s total reserves, the lowest proportion since 1958 when more than half of reserves were in gold. Reserves denominated in currency other than the US dollar have now grown to 44.7 % of the total.
Contributors to net change in asset values between the third
and fourth quarter, 2004
Foreign direct investment in Canada virtually unchanged
Foreign direct investment in Canada at the end of December was virtually unchanged at $367.9 billion from a quarter earlier. On a year-end basis, overall foreign direct investment in Canada at the close of 2004 was up $10.4 billion compared to 2003.
Foreign holdings of Canadian stocks increase
Foreign investors continued to acquire Canadian shares during the quarter. At the end of December, they held a record $109.9 billion worth. The strong performance of the Canadian stock market in 2004 encouraged foreign investors to buy Canadian stocks. The position increased by almost 30% during the year as the S&P/TSX composite index gained 12.4%. Moreover, a number of large transactions throughout the year helped bringing the position to this high level.
Foreign holdings of Canadian bonds were down $2.5 billion during the quarter to $405.1 billion. Foreign investors acquired Canadian bonds in 2004 but the strengthening Canadian dollar offset all these acquisitions. More than half of the outstanding Canadian bonds held abroad are issued in US dollars.
Foreign holdings of Canadian money market paper were virtually unchanged from the end of the third quarter at $18.0 billion.
Reduction in foreign currency deposits between Canadian banks and their foreign affiliates led to a lower deposit liability position. The loan liability position was also reduced to $37.4 billion, its lowest level since the end of 1989.
Contributors to net change in liability values between the third
and fourth quarter, 2004
Information on methods and data quality available in the Integrated Meta Data Base: 1537.