Plunging stock markets impact Canada’s foreign assets

Canada’s foreign asset holdings likely suffered a record drop in the first quarter amid market turmoil, Statistics Canada reported on Monday.

As part of its ongoing effort to provide more timely economic data during the Covid-19 pandemic, the national statistical agency published a “flash” estimate of Canada’s international investment position for the first quarter, suggesting that net foreign assets declined by approximately $90 billion during the quarter.

“While the decline of the net position is not considered that substantial, it is hiding significant and offsetting movements in the value of gross international assets and liabilities, highlighting the risk and the volatile nature associated with these investments,” it said.

Specifically, StatsCan reported that Canada’s estimated international assets dropped by $360 billion (6.2%) in the first quarter, which would represent the largest decline in value on record and the biggest percentage drop since the height of the financial crisis.

“Valuation changes alone resulted in a loss of $775 billion (−13.4%) due to the collapse of global stock markets and a gain of $400 billion (6.9%) due to a lower Canadian dollar,” it said.

Additionally, Canada’s international liabilities declined by $270 billion (−5.7%) in Q1.

StatsCan said this reflected a $460-billion loss (−9.6%) due to “the meltdown of Canadian stock prices”, which was somewhat offset by a $155-billion increase (3.2%) due to the weaker loonie.

“The decline in international liabilities would be the highest since the third quarter of 2008, at the time of the global financial crisis,” it said.

The market turmoil affected international assets more severely than liabilities, StatsCan said, “as a higher proportion of assets are held in the form of equities than liabilities.”

StatsCan noted that, in the first quarter, the Canadian stock market dropped 21.6%, the U.S. market was down 20% and Europe’s fell by 25.6%.

On the currency front, the Canadian dollar depreciated 8.5% against the U.S. dollar, 6.4% against the euro, 2.4% against the British pound and 9% against the Japanese yen.

Ordinarily, this data is released 75 days after the quarter’s end. StatsCan published its preliminary estimate to provide a “good indication” of the direction and magnitude of changes in these metrics amid the market turmoil.

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.