Photographer: Brent Lewin/Bloomberg

Buying America: Canada Becomes a U.S. Creditor for First Time

Canada is now a creditor to the U.S. for the first time on record, government data show, reflecting the northern nation’s love affair with assets south of the border.

QuickTake Canada

The stock of U.S. assets held by Canadians in the fourth quarter of 2015 -- everything from corporate acquisitions to portfolio investments -- exceeded assets held by Americans in Canada for the first time since at least 1990, according to quarterly data published Thursday by Statistics Canada.

Easy credit, strong balance sheets, and lack of investing opportunities at home have been the main factors driving Canadian money managers and companies on a shopping spree south of the border. The value of those investments has jumped over the last couple of years as the U.S. dollar has strengthened. U.S. investors, meanwhile, haven’t been reciprocating.

Erik Hertzberg/Bloomberg

Canada’s net asset position with the U.S. was C$82.2 billion ($61.6 billion) in the fourth quarter, the first ever positive figure for the country. Canada had a net liability position of C$39.9 billion in the third quarter. The average since 1990 has been a net liability of C$248 billion.

That’s quite a turnaround between the two countries. Canada has historically relied on U.S. investment to finance its economy to the point where U.S. ownership has always been a contentious issue. A separate annual data series that date backs to the 1920s shows Canada has always been a net debtor to the U.S.

Canada’s total net asset position with all countries rose to C$472 billion in the fourth quarter. That’s good news from a creditworthiness point of view. The more indebted a country is to foreigners the more vulnerable it is to financial shocks and Canada’s creditor status helps in times like this when financial markets are volatile, commodity prices are falling and the country is running large current account deficits.

Canada “had a sound international investment position base to start with and that held us in good check throughout this period of time and made us less vulnerable now,” said Mark Chandler, head of fixed income research at RBC Capital Markets in Toronto. “If we hadn’t had that and we were running these current account deficits now, it would be problematic for the currency.”

On the other hand, the data also suggest a reluctance to acquire Canadian assets, even with a weaker Canadian dollar. Direct investments from the U.S. into Canada have fallen over the past year, while portfolio investments have been little changed.

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