Presentation on theme: "Recent Cross-border Financial Activity Working Party on Trade on Goods and Services November 2009."— Presentation transcript:
Recent Cross-border Financial Activity Working Party on Trade on Goods and Services November 2009
Cross-border financial activity increased in recent years… Increased liberalization of international flows (online brokers, mergers and acquisitions activity) Increased use of new investment vehicles (Asset- backed securities, derivatives) Increased number of participants in the market (small investors, public pension plans) Regulatory changes Increased outward direct investment; increased M&A activity
Canada’s exposure to foreign financial markets has increased
Impact of regulatory changes on foreign investment
Canadian holdings of foreign securities: a country perspective
Concentration of investment in foreign equities: % Share for selected countries
Increased outward FDI activity and geographical diversification $79.8 B. $637.3 B.
Less geographical diversification for inward FDI $114.2 B. $504.9 B.
Higher Canadian demand for foreign securities: Increased exposure to global financial markets Increased exposure to markets’ volatility Increased exposure to currency fluctuations Increased exposure to financial shocks Higher Canadian direct investment abroad: Increased exposure to foreign economies Summary
Recent financial events evidenced by the international accounts program Key issue: Canadian institutional investors’ reactions to deteriorating global credit conditions in 2007 ● Immediate ● Marked ● Sustained
Rapid-sustained change in Canadian portfolio investment at outset of global credit concerns
Reduction in holdings of foreign debt in response to global credit concerns
Holdings of foreign short-term paper reduced drastically in August 2007
Investment in foreign long-term debt instruments also declined
Canadians repatriated funds for the first time in 30 years
… to invest in relatively safe government of Canada T-bills
Foreign demand for T-bills continued in 2009 and expanded to federal bonds Foreign portfolio investment in Canada
Canadians returned to foreign markets, mostly stock markets in 2009 Canadian portfolio investment abroad 1
Foreign direct investment lost steam as of 2008
Mergers and acquisitions mostly explained the reduced inward activity
Survey vehicles for the measurement of portfolio investment Canada’s international transactions in securities (monthly) Foreign investment in Canadian securities Canadian investment in foreign securities Other position surveys – Annual Inward Outward - CPIS Book and market value
Summary Immediate, marked and sustained reaction of Canadian institutional investors in mid-2007 with respect to their holdings of foreign securities … prelude to financial crisis that erupted in the late summer and fall of 2008? Current reluctance of these same investors to rebuild holdings of foreign securities, especially debt instruments … sending a signal about perception of some degree of fragility in global financial markets? Comments/questions?