Canada’s international investments plummet in Q1

Canada’s international investment position deteriorated in the first quarter, as plunging equity markets sharply reduced both international assets and liabilities, Statistics Canada reported.

The national statistical agency said that Canada’s net foreign asset position decreased by $77.3 billion in the first quarter to $934.2 billion.

Canada’s international assets dropped by $382.2 billion (-6.6%) to $5.4 trillion, StatsCan said, noting that this marked the largest drop since the third quarter of 2008 during the global financial crisis.

The drop in assets came as foreign equity markets plunged in response to the Covid-19 outbreak and Canadian investors divested foreign stocks, particularly U.S. holdings.

StatsCan noted that the U.S. stock market dropped by 20.0% in the quarter, and the European market was down 25.6%. The Canadian market lost 21.6% in the quarter.

Canadian financial corporations (including banks, mutual funds and pension funds) are heavily exposed to foreign assets. StatsCan reported that their holdings of foreign equities fell by 19.3% in the first quarter ($523.2 billion) to $2.2 trillion, led by a drop in U.S. equities.

The decline in the value of foreign assets was somewhat offset by a drop in the Canadian dollar.

In the quarter, the Canadian dollar lost 8.5% against the U.S. dollar, it dropped 6.4% against the euro, 2.4% against the British pound, and 9.0% against the Japanese yen, StatsCan reported.

At the same time, Canada’s international liabilities also saw their largest decline since the financial crisis, dropping by 6.4% in the quarter ($304.9 billion) to $4.5 trillion.

“Lower equity prices moderated by the effect of the depreciating Canadian dollar explained most of the change [in liabilities],” StatsCan said.

“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,” StatsCan said.

“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,” it noted.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.