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Canada's international investment position
Second quarter 2004

Analysis — Second quarter 2004

Canada’s international investment position

Driven by the increase in Canadian direct investment abroad, Canada's net liability to foreign residents fell to its lowest level in about 20 years during the second quarter of 2004.

Chart 1
Canada's international investment position

Chart 1
Canada's international investment position

Canada's net external liabilities (the difference between its external assets and foreign liabilities) declined $10.5 billion to $175.9 billion at the end of June. As a result, net external liabilities at the end of June represented 13.7% of Canada's gross domestic product, down a full point from 14.8% at the end of March. This ratio has steadily decreased since the peak of 44.3% observed in 1994. 

The value of international assets rose by 6.4% from the first quarter to $993.1 billion. Canadian direct investment abroad, which increased $36.3 billion, was the major contributor to this advance.

On the liability side, important increases in foreign holdings of Canadian stocks and in bank deposits led to the 4.4% gain in Canada's international liabilities, which reached $1,169.0 billion at the end of June.

During the second quarter, the Canadian dollar lost ground against the US dollar and other major currencies, except the Japanese yen.

Note to readers

Additional estimates at market value

As of the first quarter 2004, additional series measuring portfolio investment at market value have been incorporated into the release. Canadian and foreign shares as well as bonds are available at market value. These additional series are part of a multi-year initiative to improve the balance sheet information for all sectors of the economy. The following analysis focuses on the book value series until a full set of market value estimates become available.

Currency revaluation

The value of assets and liabilities denominated in foreign currency are converted to Canadian dollars at the end of each period for which a balance sheet is calculated. Most of Canada’sforeign assets are denominated in foreign currencies while less than half of our international liabilities are in foreign currencies.

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 dollar is depreciating.

Canadian direct investment abroad jumps

The largest takeover by a Canadian enterprise of a foreign company in history drove Canadian direct investment abroad to its highest value on record. Canadian direct investment assets abroad reached $447.4 billion at the end of June, up 8.8% or $36.3 billion from the end of March.

While total acquisitions by Canadian firms of foreign companies accounted for most of this increase, the impact of the depreciation of the Canadian dollar added another $3.0 billion to the position. The increase was largely directed to the United States, while Canadian investors increased their asset position with all other countries by $5.4 billion to $247.0 billion.

Canadian direct investment in the United States rose $30.9 billion to $200.3 billion and now represents almost 45% of total Canadian direct investment abroad. At the end of March, this ratio was just over 41%.

Canadian portfolio investment abroad also increases

After a 6.7% increase in the first quarter, Canadian holdings of foreign bonds rose by 7.8% to a record high value of $51.4 billion in the second quarter.

Canadian holding of foreign stocks reached $193.1 billion at the end of June, a modest increase of $2.2 billion compared with the end of March.

Since the beginning of the year, Canadian residents have increased their position in foreign bonds by $6.7 billion. At the same time, their holding of foreign stocks have increased by $4.3 billion. Uncertainty toward some foreign stock markets could explain the preference for bonds.

Foreign direct investment in Canada up

Foreign direct investment in Canada increased $4.6 billion to $364.2 billion. Foreign direct investors increased their foreign direct investment position in Canada—mostly with reinvested earnings as net acquisitions were negative during the second quarter.

The net direct investment position (the excess of Canadian direct investment abroad over foreign direct investment in Canada) increased $31.7 billion and now stands at a record $83.2 billion. A year ago, the net direct investment position was at $17.3 billion.

Chart 2
Foreign direct investment position

Chart 2
Foreign direct investment position

Substantial increase in foreign holdings of Canadian stocks

Foreign holdings of Canadian stocks jumped $18.5 billion to $104.7 billion at the end of the second quarter. This substantial increase came largely from new issues of Treasury shares related to the acquisition of an American firm.

Foreign holdings of Canadian bonds from all sources reached $412.6 billion at the end of June, up $6.0 billion from the end of March.

Foreign holdings of Canadian money market paper increased by more than 10% to $20.6 billion. The position of short-term paper issued by the federal government (including federal government enterprises) increased $2.1 billion to $15 billion.

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Date Modified: 2004-09-30 Important Notices