Capital outflows, concentrated in short-term bonds: BlackRock

The capital outflows that have occurred for two consecutive years in Mexico respond to the global context of uncertainty and the greater attractiveness of China after its incorporation into the World Government Bond Index (WGBI), says José Luis Ortega, director of the Debt teams and Multiactivos at BlackRock México.

“Most of this sale of foreign bonds has occurred in the short term, in less than five years. The sale is concentrated there. Those of 10, 20 or 30 years present a very marginal sale and on the net it is light. If they were uncomfortable about the risk in Mexico, they would sell the riskiest one, which is the 20 and 30 year old one. “

Indeed, figures from Banco de México show that so far this year, short-term securities show a liquidation of 24% with respect to the holding at the close of 2020, which contrasts with 14% of the undone positions in long-term securities .

If we consider all of 2020 and 2021, the gap is even greater, since the non-resident’s holding in short-term bonds has fallen 55% against the 22% that the long-term one presents.

The Blackrock strategist clarifies, in an interview, that the Mexican bond liquidation has shown some stability; and thus what is evidenced by the information from Banco de México.

From the first business day of the year to December 10, non-resident investors have settled debt securities for 266,084 million pesos. This divestment is 5% higher than the historical one observed in the year of the pandemic.

A few days before, at the cutoff of November 25, foreign capital had gone out for 294.928 million. This means that after 16 days, they stopped undoing positions in Mexican securities with respect to the pace they had been doing.

As explained by the Bank of Mexico, the greatest attraction of China and its incorporation into the WGBI, results from the fact that this index is a follow-up for global investors.

Being part of this index, the country’s sovereign debt receives more attention, favoring the capture of more foreign savings and reducing the cost of financing the economy.

According to the expert, Mexico’s monetary policy has become more restrictive, but as it remains below the neutral rate, it is appropriate to explain it as “less accommodative.”

This is because the real neutral rate estimated by Banco de México is 2.5 percent. This means that now with the level of 5.5% and an estimated inflation of 4.2% (for 2022) it gives a real rate of 1.3% that is less neutral and is gradually removing the accommodative.

They stay in Mexico

The strategist stressed that foreigners are undoing a position where there is no attraction but in a world of emerging markets that are reversing their monetary policy starting from rates close to zero, Mexico stands out among the most attractive.

The real ex ante rate that Mexico offers is not negative, it is close to 1.3% and that means a higher yield than that offered by most countries in Latin America, he argued.

The director of the Debt and Multi-Assets teams of the fund manager for Mexico emphasizes that BlackRock is committed to continuing to provide Mexican investors with options to improve their portfolio in a better way and obtain returns.

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