Dutch net external assets in 2011 again higher due to current account surplus
According to preliminary figures released by DNB on its website today, Dutch net external assets (the difference between foreign assets and liabilities) increased again in the past year, from EUR 173 billion to EUR 224 billion (at year-end 2011).
The increase was the result of the current account surplus, which continued to grow to EUR 55 billion, representing approximately nine per cent of GDP. The short-term trend in the current account surplus is still upward (see Chart 1 for monthly averages). Compared to 2010, the monthly surplus on average was one billion higher. This positive contribution to our country’s net foreign assets was the result of higher exports of goods and services and to an income balance that improved thanks to higher profits on equity capital of Dutch companies in foreign subsidiaries.
On the other hand, unlike in previous years, changes in value due to factors such as stock and exchange rates on balance had a small negative impact on net external assets. In the years 2008 and 2009, these net assets were still boosted by some EUR 100 billion through value changes. In 2010 and 2011 their growth was mainly determined by the current account surplus.
Continuing large influence of price movements as a result of financial-economic crisis
For Dutch external assets, (gross) value changes mainly play a role in securities transactions, as figures on securities are based on current equity prices and may also be impacted by exchange rate movements. Small percentage changes of balances, calculated in euros, may have large consequences, as large sums are involved in the securities trade between the Netherlands and foreign countries. At year-end 2011, foreign investors held EUR 1,158 billion in Dutch securities, especially debt instruments such as government bonds. Dutch investors in turn held EUR 1,028 billion in foreign securities, also mainly bonds.
The continuing financial-economic crisis meant that value changes in 2011 again had a large influence on the investment portfolios, also compared to the sale and purchase of securities (Chart 2). Value changes caused a decline in holdings of foreign securities of EUR 20 billion. In contrast, Dutch securities held by foreign investors increased EUR 10 billion in value (see hereafter). The impact of price movements and value changes on net external assets is usually not visible. The reason for this is that for Dutch and foreign securities they are usually on a par and largely offset each other (the same applies to the increasingly more important derivatives, which are not further discussed here).
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Mixed interest for Dutch and foreign securities
In 2011, foreign holdings of Dutch securities increased more than EUR 30 billion. Foreign investors grew their portfolios of Dutch debt instruments and the value of those portfolios moreover increased due to an interest rate drop in the Netherlands. In the second half of 2011, the value increase of debt instruments was the key factor behind the value changes of the total holdings of Dutch securities. In previous years, exchange rate fluctuations of Dutch shares had been decisive in this respect. Still, the influence of the financial-economic crisis and mixed prospects for recovery continued to be visible in the value of shares, because foreign holdings of Dutch shares experienced value declines as stock market conditions in 2011, after having improved for a while, again deteriorated.
Dutch investors in 2011 saw the size of their portfolios with foreign securities drop by EUR 12 billion, even despite purchases of mainly shares (EUR 10 billion). In part, the purchases possibly reflected rebalancing, operations by investors to restore the investment mix they want in response to price declines on stock exchanges worldwide. However, purchases substantially lagged the value loss on foreign shares, which in 2011 amounted to EUR 20 billion.
Further shifts in Dutch holdings of foreign bonds
In 2011, the size of Dutch holdings of foreign debt instruments on balance did not change notably, but just as in 2010 within those holdings several important shifts occurred. Continuing uncertainty about fiscal and economic developments in various European countries was again the reason for investors to sell off (government) bonds of those countries (Chart 3). Investors instead preferred German bonds. In addition, Scandinavian bonds and also Austrian bonds became more popular. Holdings of Portuguese, Greek and Italian bonds in two years’ time declined 41, 36 and 33 per cent (of the year-end value in 2009, not counting value changes) as a result of sales. In the second half of 2011, French and Belgian bonds also lost their appeal to Dutch investors. Whereas they had increased their holdings of these bonds in 2010 with EUR 13 billion, in 2011 they sold EUR 15 billion in bonds from these countries. At the end of 2011 the number of sales of these bonds declined. All in all, in 2010 and 2011 almost EUR 60 billion of capital was shifted from bonds of South-European countries (and, incidentally, also the United States) to North-European countries.
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Moderate growth of direct investment positions
The positions of outward and inward direct investment at the end of 2011 were slightly higher than the year before. Based on preliminary figures, they increased EUR 747 billion (plus 0.6%) and EUR 500 billion (plus 1.7%), respectively. Dutch enterprises invested for EUR 16 billion in foreign subsidiaries. In 2010, new investments in foreign companies still amounted to EUR 42 billon. Foreign enterprises in turn invested a total of EUR 12 billion in Dutch subsidiaries. Contrary to the more reserved attitude of Dutch investors, they increased their investments (in the Netherlands), for instance by reinvesting more profits. In 2010, they had withdrawn EUR 7 billion of capital from the Netherlands.