International investment position

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First quarter 2008

International investment position note to readers

Canada’s net international investment position improved in the first quarter of 2008, largely reflecting both a pickup in Canadian direct investment abroad as well as the effect of a depreciating domestic currency (especially against non-U.S. currencies) on Canadian holdings of foreign securities.

Gains in Canada’s international assets were twice those of its international liabilities. Canada’s international assets increased to $1,280.9 billion, up $96.5 billion from 2007 year-end. On the other side of the ledger, foreign holdings of Canadian liabilities rose more moderately by $56.7 billion to $1,366.1 billion.

As a result, net foreign debt declined substantially to $85.2 billion. This represented 5.4% of Canada’s Gross Domestic Product, down sharply from 8.0% in the fourth quarter of 2007.

Chart G.1
Canada's international investment position

Canada’s net direct investment position widens

Direct investment abroad by Canadian firms rose by $36.9 billion to $551.4 billion in the first quarter of 2008. This 7.2% increase was almost evenly split between transactions and the impact of the depreciation of the Canadian dollar. Canadian direct investors made sizable acquisitions of foreign firms and also injected significant funds into existing foreign affiliates in the quarter. On the other hand, foreign direct investment in Canada grew more modestly ($9.7 billion), as the activity of the fourth quarter of 2007 was not sustained.

Foreign direct investment flows into Canada slowed significantly from the acquisitions-driven pace of previous quarters, while Canadian direct investment abroad continued to strengthen. This, along with the depreciation of the Canadian dollar, resulted in the first widening in the net direct investment position (the difference between direct investment abroad and direct investment in Canada) since the 2006 year-end.

Chart G.2
Direct investment position

Marked increases in the value of both portfolio assets and liabilities

There was a marked increase in the value of Canadian portfolio investment assets abroad, which reached $379.6 billion at the end of the first quarter 2008. Even though transactions on foreign securities were up modestly in the first quarter of 2008 (+$3.3 billion), the devaluation of the Canadian dollar added another $21.3 billion to the position. Investment in foreign stocks recorded the largest gains, closing the quarter at $227.4 billion.

Canadian portfolio liabilities to the rest of the world recorded the largest increase in more than six years. Canadian bonds fuelled this gain with $9.7 billion worth of transactions and a weakening Canadian dollar, which added $11.5 billion to the portion of Canadian bonds issued in foreign currencies. At the end of the first quarter Canadian portfolio securities held by non-residents stood at $506.9 billion, up $20.2 billion from a quarter earlier.

Other investment items also record significant changes

Other domestic assets rose sharply, mostly as a result of transactions in deposits and currency devaluation. Canadian deposits abroad were up 12.6% during the quarter. Other domestic liabilities also rebounded during the quarter, almost entirely from a strong increase in deposits in Canada by non-residents.

Net international indebtedness with portfolio investment at market value largely unchanged

Canada’s overall net international investment position can also be calculated with assets and liabilities of tradable securities valued at market prices. Although it edged up in the first quarter of 2008, net foreign debt was much lower by this measure, sitting at $22.2 billion. This gap reflected the differing composition between international portfolio assets and liabilities. A much larger portion of Canadian holdings of foreign securities is placed in stocks, and these have a correspondingly larger impact when they are stated at market value.

Statistical table

• Table G.1 International investment position at period-end

Information on methods and data quality available in the Integrated Meta Data Base: 1537.