During May, foreign investor appetite was rekindled, with inflows amouting to USD0.55bn. Foreigners allocated their flows mostly to MBonos (USD1.07bn), followed by Udibonos (USD0.15bn) and Bondes (USD0.01bn), but closed some Cetes positions (USD0.68bn). YTD, foreign appetite for government securities has remained muted, with outflows of nearly USD0.52bn, with foreigners closing some positions in the Bondes and MBono markets. Though these investors still have an appetite for Cetes and Udibonos, it was not enough to offset their outflows. Regarding participation, foreigner share 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). While foreigners have invested in Cetes this year, participation has slightly decreased over the last year to 11%, even though the trend has been rising over the past five years. Foreign participation over the past year in the Udibonos market has slightly increased to 5%. Considering all government securities, the foreign share is close to 15% of the total outstanding. As uncertainty regarding Banco de México prevails, foreign investors have stayed on the sidelines. We acknowledge that the probability of Banxico cutting rates in the next meeting is lower now. This could dampen appetite for duration in MBonos but could trigger interest in both shorter Ms tenors and Cetes.
Meanwhile, flows from local investors amounted to USD13.241bn, with significant contributions from local banks, as they increased their positions in Bondes, Udibonos and Cetes, and other regional investors – mostly focusing on MBonos and Cetes. Local pension and mutual funds also showed inflows, but to a lesser extent than domestic banks and funds. As we have mentioned in previous reports, demand from local investors remains constant and resilient, effectively financing government needs whenever foreign investors divest.
In terms of offshore equity flows to the Mexican market, foreigners showed outflows of nearly USD2.416bn, with a YtD total of USD1.542bn. This disinvestment from equities also took place in other emerging markets, as outflows from EMs totalled USD6.0bn, according to IIF data. Given prevailing uncertainty regarding the future path of monetary conditions, volatility in EM assets continues to be the name of the game in a context in which the economic cycle could lose steam going forward.