Non-resident investors completed four consecutive years liquidating their positions in Mexico
Experts point out that the trend that non-resident investors have maintained to undo their positions in Mexico is a focus of risk.
Mexico recorded a disinvestment of 11,273 million dollars during 2023, according to information from the Bank of Mexico.
This means that non-resident investors completed four consecutive years liquidating their positions in Mexico, to the point that today, 16% of the Mexican securities in circulation are in the hands of foreigners. A proportion that fell from 29% that they represented in 2019, during the first year of government of the outgoing president, Andrés Manuel López Obrador.
According to the economist for Latin America at Goldman Sachs, Alberto Ramos, the trend that non-resident investors have maintained to undo their positions in Mexico is a focus of risk, especially in this year of presidential elections in Mexico and the United States.
“The prospects for Mexico have been harmed by state policies focused on the natural resources sectors and an uncertain and stricter regulatory framework (…) they are much more exposed to a shock of confidence or policies that could significantly weaken the flows of the capital account, portfolio and FDI “, explained the strategist from Wall Street.
Despite this disinvestment in Mexican securities, the Mexican currency appreciated 13.2% throughout 2023, which shows that speculative positions in the futures market with respect to the peso, the greater entry of dollars for FDI, the contribution in dollars for exports, new investments and the flow of remittances, weighed more in the country’s quotation, said the director of economic analysis at Banco Base, Gabriela Siller.
Speculative positions in favor
Apart, the director of economic, exchange and stock market analysis at Monex, Janneth Quiroz Zamora, reported on February 2 that the speculative positions in favor of the peso continued to feed the appreciation of the Mexican currency inertially.
From March 8, 2023 and as of January 30 of this year, long positions on the peso were maintained in the Chicago Futures Market (CME, for its acronym in English).
This means that the bets of the net speculative positions continued in favor of the peso.
Right now we have a fairly attractive carry in Mexico of 525 basis points, said Luis Pérez Lezama, Director of public finance at Saber Think lab.
The carry trade is when investors finance themselves with a low interest rate and then invest their profits in another currency that offers higher rates. Hence the relevance this year of elections, to maintain an attractive differential, which means not falling behind the Fed’s decisions on rates. As the dollar becomes more expensive, the prices of imported products are pressured and another source of compression to inflation is generated.
Shocks due to uncertainty
In the detail of the information contained in the Balance of Payments for the fourth quarter in 2023, it is observed that the exit of portfolio investments for 11,273 million dollars, which resulted from the entry of 6,395 million to the stock market, which could not compensate for the exit of 4,878 million.
The director of economic analysis at Banco Base, Gabriela Siller, explained that a good part of the aversion to risk that is had on Mexico is due to the management of economic policy, especially on the part of public finances. “For the repeated support that continues to be given to Pemex and that will continue to put pressure on public finances”.
The chief economist of Bank of America Securities for Mexico and Canada, Carlos Capistrán pointed out since mid-February that another factor that can generate pressure is the consistent financial support of the Mexican government to Pemex.
You have to be very careful because, if they continue doing that, the risk they run is that Pemex will drag the federal government and also start to lower its (credit) rating. “
The Bofa expert emphasized that the risk of Pemex dragging the sovereign rating could materialize in the next six-year term, if the new government does not develop a strategy that provides financial viability to the oil company and reduces its dependence on the government.
Source: El Economista
