During November, foreign flows to government securities were negative by nearly USD1.3bn. By instrument, foreigners decreased their positions in all the assets but mostly in MBonos (outflows for nearly USD1.0bn). Considering all government securities, their participation decreased to 17% from 18% in October, the lowest level since 2010. Since the pandemic began, foreigners have decreased their exposure to the MBono market. Indeed, their share in the market has decreased from 59% in February 2020 to 39% based on the latest data. We have mentioned in our previous reports that foreign investment inflows will take time to recoup pre-COVID-19 levels. Foreign appetite for government fixed-income instruments could start to recover as Mexico still offers a higher carry than its peers, and risk premiums are relatively stable because debt levels remain under control compared to other emerging economies. However, we would expect foreign inflows to remain stagnated, as uncertainty regarding the current tightening cycle will continue due to the probable noise resulting from the new composition of Banxico’s Board.
Meanwhile, local investors added nearly USD2.0bn considering all government securities. By breakdown, Afores and mutual funds added nearly USD1.3bn and USD670mn, respectively, while other local investors and local banks decreased their positions by about USD1.3bn and USD130mn. During November, outstanding Cetes decreased by nearly USD3.8bn as more instruments matured and offset new issuances. Last year, the Ministry of Finance (MoF) introduced a strategy to issue more instruments with low duration, compared to the issuance of MBonos and Udibonos, as risk premiums were under pressure because of the pandemic. Therefore, as the MoF issuance has started to normalize, Cetes’ outstanding debt has adjusted but flows from local investors were distorted.
Finally, in terms of global portfolio flows, IIF estimates suggest that total portfolio flows to emerging markets maintained an upward trend. Inflows to debt markets recovered faster than to equity markets, but these also have maintained an uptrend. In contrast to EMs, Mexico’s portfolio flows remain negative mostly due to government securities dynamics. Still, foreign investments to the equity market also showed outflows for nearly USD4.8bn as of November.