Mexico will register two consecutive years of historical capital outflows. Based on figures from the Bank of Mexico, the director of Economic and Financial Analysis of Banco Base, Gabriela Siller, specifies that foreign investors have liquidated 259.325 million pesos so far this year.
“It is a divestment that will hardly be reversed in the remainder of the year, especially assuming the start of the Federal Reserve’s tapering (withdrawal of asset purchases),” he stated.
This sale of Mexican debt securities already exceeded the one recorded in all of 2020, the year of the pandemic and the uncertainty due to the unprecedented closure of economies. The settlement in that year amounted to 257,238 million pesos and at that time it established a historical amount.
The director of Economic and Financial Analysis of Finamex, Casa Bolsa, Jessica Roldán, agreed that the risks for more capital outflows in the remainder of the year are on the rise.
It could happen that the exit rhythm is reduced, but rather I think that the risk is in the opposite direction, he commented.
The strategist says that several events are coming that will probably make international investors more nervous, such as tapering in the US, the deterioration in inflation expectations, or the Fed changing the message about the rate hike that makes the market think to go ahead in 2022. But this exit that Mexico has experienced so far no longer has a reverse, he observed.
The Finamex expert approached the M Bonds, to warn that 10 months of exits are completed, except in September and November of last year. He observed that this settlement has been presented in all government instruments, where the one-year Cetes sales also stand out.
In addition, the deputy director of economic analysis at Monex, Janneth Quiroz, said that this consistent divestment, which has been maintained since the pandemic was declared, reflects the fear and nervousness of international markets and Mexico’s greater exposure to global uncertainty.
“We are not talking about an outflow of capital from the Mexican economy due to idiosyncratic risk,” he said.
He clarified that “we are seeing an aversion that was aligned at the beginning of the second half of this year due to inflation expectations, the depreciation of emerging currencies and the proximity of tapering.”
For the experts from Banco Base and Finamex Casa de Bolsa, there are more indications that domestic factors are affecting the appetite for instruments denominated in Mexican pesos.
Information from Banco de México shows that only in the first 12 days of October of this year, non-resident investors got rid of 35,116 million pesos.
There is no way to separate the events that are generating emerging risk aversion from those that are fueling Mexico’s economic policy, Siller acknowledged.
But in the first 12 days of October, the liquidation of Mexican bonds accelerated and the period coincides with the Electricity Reform initiative that would generate a setback in the Mexican economy, pressure on public finances and cuts in the debt rating, he warned.
Roldán added that “Mexico is associated with a less than stellar environment, because it will continue to grow at low rates, it shows a deterioration in the environment for doing business and there is the issue of energy policy that does not pay to strengthen the perception of the country.”
Asia captures investment
Although it is early to have a comparative reference on the behavior of portfolio investments towards other emerging markets, the Institute of International Finance (IIF) documented that Mexico is one of the two emerging markets where the highest settlement of debt bonds has been registered by part of foreigners.
According to their accounts, foreigners unwound positions in Mexican bonds for 11,309 million dollars between January and September, a settlement that was barely exceeded by that of the Czech Republic, which recorded outflows of 12,577 million dollars, the Institute reported. that associates financial institutions with worldwide operations.
Inside the monthly Capital Flows Tracker report it is observed that even immersed in the same context of global uncertainty, the taking of debt securities was differentiated.
Thus, it is understood that almost a third of the emerging countries observed, 11 of the 34, reported capital outflows.
Along with Mexico and the Czech Republic, South Africa is left with the third largest liquidation of debt securities in nine months, which amounted to 7.22 billion dollars.
In contrast, China registered entries of 73.248 million dollars in the nine months referred to.
The Finamex expert, Casa de Bolsa added Mexico enjoyed a boom period in flows by entering benchmark indices that anchor capital to the markets.
The above happened between 2010 and 2015. “Mexico was the star and generated a lot of interest and capital inflows. But now, with the entry of China and India to the indices, it loses to the rest ”.