Canada’s international assets were down by $382.2 billion (-6.6 per cent) to $5,406.8 billion in the first quarter, the largest percentage decrease since the third quarter of 2008 at the time of the global financial crisis, reported Statistics Canada on Thursday.
“In addition to the downward revaluation from lower foreign equity prices, important divestments in portfolio stocks, mainly US shares, also contributed to the decline. The revaluation effect (+$335.7 billion) of the depreciation of the Canadian dollar against all major foreign currencies attenuated the decrease,” said the federal agency.
“On the other side of the ledger, Canada’s international liabilities were down by $304.9 billion (-6.4 per cent) to $4,472.6 billion, also the largest percentage decrease since the third quarter of 2008. Lower equity prices moderated by the effect of the depreciating Canadian dollar (+$141.7 billion) explained most of the change. At the end of the first quarter, Canada’s international liabilities denominated in Canadian dollars were down by $370.3 billion to $2,493.9 billion and represented a record low of 55.8 per cent of Canada’s total international liabilities, down from a share of 60.0 per cent in the fourth quarter.
“Conditions in financial markets changed rapidly in February and March, leading to large revaluations of assets and liabilities and adversely impacting Canada’s net international investment position in the first quarter. As these conditions continued to evolve and major global stock markets started to show signs of recovery in April and May, revaluations will continue to play an important role in the evolution of the international investment position in the next months.”
StatsCan said Canada’s net foreign asset position decreased by $77.3 billion to $934.2 billion at the end of the first quarter.
“Following a few weeks of uncertainty and volatility as the COVID-19 crisis unfolded in many countries, global stock markets closed the first quarter at much lower levels than they did at the end of 2019. Over the quarter, the Canadian stock market contracted by 21.6 per cent, the US stock market lost 20.0 per cent and the European stock market was down 25.6 per cent. This resulted in substantial declines in the value of both Canada’s international assets and liabilities in the form of equity instruments, with assets being more impacted as equities account for a much higher share of assets than liabilities,” explained the federal agency.
“The revaluation effect from fluctuations in exchange rates (+$194.0 billion), however, moderated the overall decrease in Canada’s net foreign asset position. Over the quarter, the Canadian dollar lost 8.5 per cent against the US dollar, 6.4 per cent against the euro, 2.4 per cent against the UK pound sterling and 9.0 per cent against the Japanese yen. At the end of the first quarter, 96.3 per cent of Canada’s international assets were denominated in foreign currencies, compared with 44.2 per cent of its international liabilities, making the assets more sensitive to exchange rate fluctuations than the liabilities.”
