In June, foreign investor appetite for government securities was mild, with inflows of c.USD0.51bn. This took place following the elections in Mexico, despite prevailing volatility that increased risk premiums. In terms of breakdown, foreigners invested in Cetes (USD0.55bn) and Udibonos (USD0.39bn), but decreased their positions in MBonos (USD0.44bn). In the first half of the year, this group of investors rekindled their appetite for Cetes and Udibonos, with accumulated inflows of nearly USD1.80bn and USD 0.96bn, respectively, but shunned Bondes and MBonos, closing positions worth USD1.60bn and USD1.17bn, respectively. However, overall foreign appetite for Mexican sovereign bonds remained subdued as total flows stand close to zero.
Regarding participation, the foreign share of all government securities has remained stable at around 15% over the last year. Foreign participation in the MBono market has decreased over the last five years and currently stands at 30% (compared to 33% a year ago and 60% five years ago). In contrast, foreigners have invested in Cetes this year, with participation at 13%. Foreign participation in Udibonos has remained stable at around 5% over the past year.
In terms of local participation, there was a mild outflow of nearly USD0.06bn from government securities by local banks during June. In contrast, pension funds, mutual funds and other local investors added nearly USD3.07bn, USD1.61bn and USD4.51bn, respectively. Overall, total inflows from local investors amounted to USD9.13bn, with significant contributions from local pension funds and other local investors. The demand from local investors remains robust, effectively financing government needs whenever foreign investor appetite dwindles.
In terms of offshore equity flows into the Mexican market, foreigners withdrew USD1.22bn. YtD, this group of investors has closed positions in Mexican equities totalling USD2.76bn. This disinvestment in June contrasts with other emerging markets as a whole, which saw inflows to equity of USD4.9bn, according to IIF data. The selloff in local assets could be related to the risk aversion that followed the elections in Mexico, in our view.
Going forward, we see room for rate cuts from Banxico as monetary conditions remain restrictive. Appetite for duration in MBonos may have dampened, but there could be appetite for shorter tenors and the Cetes market.