Canada's net foreign debt was up $34.7 billion to $213.1 billion at the end of the fourth quarter, resulting largely from the impact of the appreciation of the Canadian dollar against most major foreign currencies and from continued foreign investment into the economy.
During the quarter, the Canadian dollar gained 3.1% against the US dollar, 3.4% against the British pound, 2.9% against the Japanese yen and 6.4% against the euro.
Canada's international assets declined $10.5 billion to $1,598.7 billion. As these assets are denominated in foreign currencies, the appreciation of the Canadian dollar resulted in a $42.1 billion downward revaluation. This more than offset outward Canadian transactions in the quarter.
Canada's international investment position
Canada's international liabilities were up $24.3 billion to $1,811.9 billion. Ongoing investment by non-residents, amounting to $51.2 billion in the fourth quarter, accounted for the increase in international liabilities. Most of this investment was in the form of purchases of Canadian securities. However, this increase in international liabilities was moderated by the appreciation of the Canadian currency, which resulted in a $21.4 billion downward revaluation of that portion of Canadian debt denominated in foreign currencies.
Net foreign debt with the United States up again
Canada's net debt position with the United States increased $29.2 billion to $354.6 billion in the fourth quarter. This net debt position has been on an upward trend since the end of 2008. Canada had a net asset position of $141.5 billion with all other countries in the fourth quarter, down $5.6 billion from the previous quarter.
Net direct investment asset position edges down
The value of Canadian direct investment abroad was down $7.8 billion. Although additional investment added $13.1 billion to the direct investment position, the appreciation of the dollar had a downward impact of $20.3 billion on the overall position. On the liability side, the value of foreign direct investment in Canada increased by $1.2 billion. As a result, the net direct investment asset position edged down to $75.3 billion.
Net portfolio investment liability expands further
Holdings of Canadian securities by non-residents increased $12.4 billion to $818.5 billion at the end of 2011. This reflected sustained investment flows, moderated by the downward impact of the appreciation of the Canadian dollar on foreign currency-denominated instruments. On the other hand, the stocks of foreign securities held by Canadian investors edged down to $409.5 billion. As a result, Canada's net liability position on securities expanded further in the quarter.
These developments reflect changes in the underlying investment trends since 2007, combined with the general appreciation of the Canadian dollar over the same period. Since the beginning of 2007, Canadian investors' holdings of foreign bonds have decreased 11.8%, while holdings of foreign money market instruments have declined 76.3%.
Since the financial crisis, Canadian holdings of foreign securities have decreased as a percentage of total international assets. However, on the liability side, foreign investment in Canadian securities has increased over the last four years as a percentage of total international liability.
Share of investment in securities
Gains in foreign equity markets moderate increase in net foreign indebtedness
Canada's overall net international investment position can also be calculated with tradable securities valued at market prices. By this measure, Canada's net foreign debt rose $10.0 billion to $233.1 billion at the end of the fourth quarter. This largely reflected stronger increases on foreign stock markets than on Canadian ones, which translated into gains on Canadian holdings of foreign equities. Canadian holdings of foreign shares were up $28.8 billion, compared with a $15.1 billion increase in non-resident holdings of Canadian equities.