During March, foreign investment in government securities showed outflows for nearly USD890mn. By instrument, foreigners increased their positions in Udibonos and Cetes (nearly USD1.13bn and USD368mn, respectively), but these inflows were offset by the MBono dynamics as foreigners closed positions for nearly USD2.4bn.
Considering all government securities, foreigners’ monthly participation decreased from 18.4% to 17.61% with the latest data. These investors have diminished their exposure to the MBono market, and albeit their share has remained stable in the latest months (at 42%), their participation decreased to 39% in March. The current geopolitical noise has prolonged the risk aversion mood, increasing risk premiums in the emerging world. In addition, expectations of a more hawkish approach by Banxico have triggered an additional jump in the nominal curve as the market expects more aggressive hikes ahead. We have mentioned before that once the market digests the current uncertainty, Mexico and other EMs could benefit from a rebalancing of positions as Russian bonds are being removed from benchmark indexes. For the time being, however, the current monetary policy context is limiting such reshuffling.
On the other hand, local investors increased their holdings in government securities overall. Indeed, local players showed inflows despite a reduction in outstanding Cetes, as the resulting funds were reallocated to other government securities. Local investor participation stands close to 82% considering all government securities.
Finally, in terms of global portfolio flows, IIF estimates suggest that during March flows to emerging markets slowed in equity and debt portfolios. Accumulated flows are below those observed in 2021 as the economic recovery has lost steam and the FOMC has already started to hike its reference rate, which decreases appetite for risk assets. Lastly, as we mentioned above, geopolitical tensions have increased risk premiums, and flows to emerging markets overall could remain defensive, at least in the short term.