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Canada's international investment position, third quarter 2015

Ottawa - Canada's net foreign asset position increased $61.0 billion in the third quarter to reach $287.9 billion. The growth largely reflected the impact of a weaker Canadian dollar, which increased the value of Canada's international assets more than it raised the value of its liabilities.

Foreign assets held by Canadians are mostly denominated in foreign currencies, while less than half of international liabilities are in foreign currencies. Over the quarter, the Canadian dollar lost 6.4% against the US dollar, 6.6% against the euro, 2.8% against the British pound and 8.3% against the Japanese yen.

Lower global equity prices had a moderating effect on the gains in the net foreign asset position in the quarter. The decline in equity prices had a greater impact on the value of Canada's international assets than on its liabilities. Two-thirds of international assets are in the form of equities compared with about 40% of international liabilities.

The Standard and Poor's / Toronto Stock Exchange composite index lost 8.6% and the Standard and Poor's 500 index fell 6.9%, while most other major foreign stock markets were also down. About half of Canada's international assets are held in the United States.

This was the fifth consecutive quarter of positive change in the net international investment position, despite ongoing balance of payments current account deficits. The gains during this period mainly reflected a lower net foreign debt position with the United States, down from $400.4 billion in June 2014 to $59.4 billion at the end of September 2015.

Canada's net international investment position advances on lower international liabilities

Canada's international liabilities were down $48.8 billion to $3,452.4 billion in the third quarter. The decrease mainly reflected a decline in Canadian stock prices, which more than offset both the upward revaluation effect of a weaker Canadian dollar on these liabilities and foreign acquisitions in Canada of $35.5 billion.

Canada's international assets edged up $12.2 billion to $3,740.3 billion. This reflected acquisitions of foreign assets of $26.7 billion as well as the upward revaluation effect of the depreciation of the Canadian dollar on international assets, which was largely offset by a decline in equity prices on most foreign stock markets.

Direct investment assets and liabilities down on lower equity prices

Direct investment assets decreased by $26.0 billion to $1,474.9 billion over the third quarter. A decline in global equity prices more than offset gains due to strong outflows, led by cross-border mergers and acquisitions, and the impact of a lower Canadian dollar against most major currencies.

Direct investment liabilities recorded a larger decline, down $65.0 billion to reach $1,129.1 billion. Again, strong inflows—mostly from mergers and acquisitions activity—were more than offset by weakening Canadian equity prices.

As a result, the net direct asset position advanced $39.0 billion to $345.8 billion as assets declined less than liabilities on a lower Canadian dollar.

Net foreign liability position on portfolio investment narrows

Canada's net foreign liability position on portfolio investment was down $20.3 billion to $114.4 billion in the third quarter. While portfolio assets were down, they fell less than portfolio liabilities.

The $2.1 billion decrease in Canadian holdings of foreign securities reflected the general decline in foreign stock prices, which was largely offset by the upward revaluation effect of a weaker Canadian dollar on these assets. On an instrument basis, holdings of foreign equities were down $24.4 billion. The decline in holdings of non-US foreign instruments, notably from Japan and China, more than offset the growth in holdings of US instruments. On the other hand, debt securities advanced $22.3 billion, nearly all US instruments.

Foreign holdings of Canadian securities were down $22.4 billion to $1,637.1 billion. Canadian stocks held by non-residents declined by $55.3 billion to $480.3 billion, a level last seen at the end of 2013. This reduction was largely due to unrealized stock market capital losses. A $33.8 billion increase in non-residents holdings of Canadian bonds, led by corporate bonds, moderated the overall decrease. Foreign holdings of corporate bonds are more sensitive to currency fluctuations than government bonds. Nearly three-quarters of corporate bonds held by non-residents are denominated in foreign currencies compared with one-third of government bonds.

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