Canadian net worth still in decline

Canadian household net worth declined by $72 billion for the first quarter of 2009, a much slower rate of decline than recorded in the last two quarters of 2008, which resulted in cumulative losses of $438 billion, according to StatsCan.

Compared to the U.S., where household net worth fell by 2.6%, Canadians are faring a little better, with a decline of 1.3%. And as a percentage of personal disposable income, household net worth has fallen faster in the United States than in Canada since the third quarter of 2007.

Ongoing losses in the stock market, coupled with lower real estate values, are the two main culprits in the decline of financial and non-financial household assets.

Total household liabilities, relative to net worth, edged up modestly in the first quarter, increasing to 24.9 cents of debt for every dollar of net worth, up 0.5 cents from the fourth quarter of 2008.

A drop in the equity market contributed to continuing decline in the value of household equity holdings, while the decrease in commodity prices and declines in manufacturing and wholesale trade drove down corporate profits. Federal debt also increased during the first quarter, albeit at a much slower pace. Overall, total government net debt (at book value) as a percentage of GDP was up, from 35% in the third quarter of 2008, to 38% this quarter.

Canadian securities hot If the value of Canadians’ investment portfolios were declining, that didn’t dissuade foreign investors from buying in Canadian securities in April.

Foreign demand once again outpaced Canadian investors’ demand for foreign securities. Non-residents continued their strong Canadian acquisitions by adding $9 billion to their portfolios — mainly government debt instruments and stock. Meanwhile, Canadian investment in foreign securities slowed to $1.3 billion with acquisitions comprised of non-U.S. securities.

Foreign acquisitions of Canadian bonds reached $5.8 billion in April, quite similar to the demand in January and February. However, the investment focus shifted from federal to provincial government bonds. Non-residents also invested in federal enterprise sector bonds, but these purchases were more than offset by divestment of federal government bonds.

Foreign investors added $6.7 billion of provincial bonds to their holdings as total new issues for this sector expanded sharply in April to levels last seen in the early 1990s. Most foreign investments in April were directed at provincial bonds denominated in non-U.S. foreign currencies. British investors acquired the majority of these provincial bonds.

Non-residents acquired $3.3 billion of Canadian equities, the largest investment in more than a year. Investments favoured shares of information technology and energy firms, while holdings of gold stocks reduced. Canadian equity prices increased 6.9% in April, led by the information technology sector.

(06/22/09)