Capital flight, distrust

Mexico registers an unprecedented capital flight.

In 2020 and so far this 2021 the capital outflow has exceeded, in each year, the one registered during the Tequila Crisis.

And it stems from the loss of confidence of foreign investors participating in the Mexican debt market.

It is not the tapering in the United States or the global uncertainty due to the pandemic. Although these are relevant factors, it is actually explained by the loss of confidence in the Mexican economy.

This is confirmed by the contrast between the inflow of capital to countries such as Chile, Colombia and Brazil, and the marked outflow of capital in Mexico.

The massive withdrawal of capital affects Mexico because it raises the “premium” that the Mexican government has to pay to investors and increases the level of volatility in the price of the peso against the dollar.

The numbers

This year 2021, foreign investors have withdrawn from Mexico, until last November 24, capital for 292 thousand 291.44 million pesos.

It is an amount that exceeds that registered in the entire year 2020, when foreign capitals left Mexico for 257 thousand 238.52 million pesos.

The director of analysis of Banco Base, Gaby Siller –in a radio interview– anticipates that if this year the withdrawal of capital is maintained, it will be something unprecedented for Mexico because there have never been two consecutive years of historical capital outflows.

And the worst thing is that everything indicates that capital outflows will continue at least until the second quarter of 2022.

In the first half of 2021, Mexico is the country where the largest capital outflow was recorded.

The capital flight observed from November 18 to 24, made evident the aversion to risk on Mexico.

It was in that week when it was speculated and later confirmed that the President of the Republic withdrew the nomination of Arturo Herrera to be governor of the Bank of Mexico.

In that period, capital flight was 42,327.67 million pesos in government securities, equivalent to 14.48% of the accumulated capital outflow in 2021.

And – the expert warns – if the scenario of capital outflows until the second quarter of 2022 materializes, it would be 9 consecutive quarters, something not seen in Mexico from the period of the second quarter of 1986 to the second quarter of 1988, when they were registered 9 consecutive quarters of capital outflows.

Exit triggers

The figures for the outflow of foreign capital from Mexico are not speculation.

The analyst is based on the figures of the balance of payments of the Bank of Mexico.

From his point of view, there are five factors that can lead to foreigners continuing to undo their investment positions in Mexico in 2022:

1.- Portfolio adjustments in anticipation of the rate hike by the Federal Reserve.

2.- The possibility that Mexico has fallen into a new recession.

3.- Caution before the new conformation of the Governing Board of Banco de México.

4.- Possibility of cuts in the credit rating of Mexico’s sovereign debt.

5.- Uncertainty due to the public consultation for the revocation of the presidential mandate.

For Siller, the explanation for Mexico’s capital flight has to do with economic policies that slow down investment and generate uncertainty. At the time.

Glimpses

5G.- The surprise was yesterday ATT Mexico led by Mónica Aspe. He announced the start of the deployment of the 5G network with a three-year plan to achieve coverage of the main cities of the country.

Everything indicates that this telecommunications company in Mexico is taking its second wind and going with everything. We will see

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