Canada’s net foreign asset position, the difference between Canada’s international financial assets and international liabilities, was down by $352.6 billion to $1,150.0 billion at the end of the first quarter of 2022, its lowest level since the end of the third quarter of 2020.
The revaluation effect resulting from market price changes (-$248.1 billion) contributed the most to the decrease in Canada’s net foreign asset position. Global stock markets moved in different directions in the first quarter. While the Canadian stock market grew by 3.1%, the US and European stock markets fell by 4.9% and 9.2%, respectively. Canada’s international investment position is strongly exposed to the performance of stock markets. At the end of the first quarter, 72.5% of Canada’s international assets and 48.2% of its liabilities were held in the form of equities.
The decline in the net foreign asset position was the first one since the first quarter of 2020 when global equity markets fell sharply at the onset of the COVID-19 pandemic.
Chart 1
Canada’s net international investment position
The revaluation effect resulting from fluctuations in exchange rates (-$74.3 billion) further decreased Canada’s net foreign asset position. Over the first quarter, the Canadian dollar gained 1.5% against the US dollar, 3.9% against the euro, and 6.9% against the Japanese yen. At the end of the quarter, 96.8% of Canada’s international assets were denominated in foreign currencies, compared with 34.9% of its international liabilities.
On a geographical basis, Canada’s net foreign asset position with the United States was down by $139.6 billion to $833.8 billion at the end of the first quarter, and was down by $213.0 billion to $316.2 billion with the rest of the world.
Chart 2 Contributors to the change in the net international investment position
Canada’s international assets down significantly
Canada’s international assets were down by $393.1 billion to $7,350.6 billion at the end of the first quarter, almost offsetting the strong growth of the previous quarter. The downward revaluation attributable to market price changes (-$217.3 billion) led the decline, followed by revaluation resulting from fluctuations in exchange rates (-$110.6 billion). Substantial sales of foreign equity securities by Canadian investors also contributed to the decline. At the end of the quarter, 70.7% of Canada’s international assets were held by the financial sector.
On the other side of the ledger, Canada’s international liabilities were down by $40.5 billion to $6,200.6 billion. Financial transactions (-$45.4 billion) such as the withdrawal of currency and deposits in Canada by non-residents as well as the downward revaluation coming from the fluctuations of the Canadian dollar against foreign currencies (-$36.3 billion) contributed to the overall reduction. Revaluations due to market price changes (+$30.8 billion), led by higher Canadian equity prices, moderated the decline. At the end of the quarter, financial corporations’ international liabilities represented 44.7% of Canada’s total international liabilities, compared with 40.3% for non-financial corporations.
The financial sector was by far the largest contributor to Canada’s net asset position to the rest of the world at the end of the first quarter, their international assets exceeding their international liabilities by $2,425.7 billion. On the other hand, non-financial corporations and the government sector both posted a net foreign liability position.
Chart 3 Canada’s international assets and liabilities
Canada’s gross external debt declines
Canada’s gross external debt, or the value of Canadian debt instruments held by foreign investors, was down by $174.5 billion to $3,213.4 billion in the first quarter in market value terms, a first decline in one year. It represented 119.1% of Canada’s gross domestic product, down from 130.2% in the previous quarter and the lowest level since the first quarter of 2019. The financial sector, largely deposit-taking corporations, was the greatest contributor to the decline (-$111.5 billion), followed by the government sector (-$40.8 billion). At the end of March, the financial sector still contributed to the highest proportion of Canada’s gross external debt (56.6%), followed by the government sector (20.1%).
Chart 4 Canada’s gross external debt as a percentage of gross domestic product
Note to readers
Definitions
The international investment position is the value and composition of Canada’s assets and liabilities to the rest of the world.
Canada’s net international investment position is the difference between Canada’s assets and liabilities to the rest of the world. An excess of international liabilities over international assets can be referred to as Canada’s net foreign debt. An excess of international assets over international liabilities can be referred to as Canada’s net foreign assets.
Foreign direct investment is presented on an asset–liability principle basis (that is, a gross basis) in the international investment position. Foreign direct investment can also be presented on a directional principle basis (that is, a net basis), as shown in supplementary foreign direct investment tables 36-10-0008-01, 36-10-0009-01 and 36-10-0659-01. The difference between the two foreign direct investment conceptual presentations resides in the classification of reverse investment such as (1) Canadian affiliates’ claims on foreign parents, and (2) Canadian parents’ liabilities to foreign affiliates. Under the asset–liability presentation, (1) is classified as an asset and included in direct investment assets, and (2) is classified as a liability and included in direct investment liabilities.
Next release
International investment position data for the second quarter of 2022 will be released on September 9, 2022.
The Canada and the World Statistics Hub (Catalogue number13-609-X) is available online. This product illustrates the nature and extent of Canada’s economic and financial relationship with the world through interactive graphs and tables. This product provides easy access to information on trade, investment, employment and travel between Canada and a number of countries, including the United States, the United Kingdom, Mexico, China, and Japan.
The product Canada’s international trade and investment country fact sheet (Catalogue number71-607-X) is available online. This product provides easy and centralized access to Canada’s international trade and investment statistics, on a country-by-country basis. It contains annual information for nearly 250 trading partners in summary form, including charts, tables and a short analysis that can also be exported in PDF format.
The Methodological Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-607-X) is available.
The User Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-606-G) is also available.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
