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Published byDuane Robertson Modified over 9 years ago
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Recent Cross-border Financial Activity Working Party on Trade on Goods and Services November 2009
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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
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Canada’s exposure to foreign financial markets has increased
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Impact of regulatory changes on foreign investment
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Canadian holdings of foreign securities: a country perspective
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Concentration of investment in foreign equities: % Share for selected countries
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Increased outward FDI activity and geographical diversification $79.8 B. $637.3 B.
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Less geographical diversification for inward FDI $114.2 B. $504.9 B.
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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
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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
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Rapid-sustained change in Canadian portfolio investment at outset of global credit concerns
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Reduction in holdings of foreign debt in response to global credit concerns
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Holdings of foreign short-term paper reduced drastically in August 2007
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Investment in foreign long-term debt instruments also declined
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Canadians repatriated funds for the first time in 30 years
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… to invest in relatively safe government of Canada T-bills
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Foreign demand for T-bills continued in 2009 and expanded to federal bonds Foreign portfolio investment in Canada
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Canadians returned to foreign markets, mostly stock markets in 2009 Canadian portfolio investment abroad 1
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Foreign direct investment lost steam as of 2008
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Mergers and acquisitions mostly explained the reduced inward activity
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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
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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?
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