(March 27 – 10:55 ET) – Statistics Canada reports that Canada’s net liability to foreign residents has declined for the fifth time in the past six years in 2000.

At end of the year, the net foreign liability amounted to $244 billion, down 10% from the end of 1999. External assets totalled $779 billion, an 11.5% increase; as external liabilities grew at a 5.5% rate to $1,023 billion. As a result, net foreign liabilities fell to 23% of gross domestic product, their lowest point since the early 1950s.

The increase in Canada’s external liabilities in 2000 was fuelled by large takeovers. However, foreign investment in Canadian portfolio securities, which accounts for almost half of external liabilities, increased by less than 1%. Foreign investors did buy Canadian stocks, but only enough to offset their sales of Canadian bonds.

The large takeovers brought the European Union’s share of total direct investment in Canada to 27%, up from 20% in 1999. Direct investment originating from the European Union amounted to $78 billion at the end of 2000, twice as large as it was five years ago. The United States though is still by far the largest direct investor in Canada at $186 billion, yet its share of total direct investment declined to 64% from 69% in 1999.

The impact of these large takeovers on year-end positions is less dramatic than it is on transaction values, as international investment positions data are recorded at book value, which does not reflect large market fluctuations.

The value of foreign holdings of Canadian bonds decreased for the second consecutive year to $381 billion, but it still accounts for 37% of foreign investment. However, foreign holdings of Canadian corporate bonds rose 7%. As a share of total foreign-held bonds, corporate bonds have been an increasing proportion for the last six years, reaching 39% in 2000.

The growth of portfolio investment abroad by Canadian residents, largely through pension and mutual funds, averaged more than 18% for each of the past five years. It reached $212 billion in 2000, representing 27% of Canada’s external assets, up from 15% in 1990. Higher foreign content limits for tax-sheltered Canadian investment funds and the use of exchangeable shares in the acquisition of Canadian firms are being cited as the reasons.