martes, 29 de mayo de 2012

Is the hot money still pouring in?

That is the big question. Portfolio investment in unprecedented amounts -- US$13.96 billion -- flooded into Mexico in the first quarter. To put the figure in perspective, portfolio investment in Q1 2012 was 70% more than the combined amount of net debt taken on and foreign direct investment (FDI).

Portfolio investment has been instrumental to the peso’s post-U.S. financial crisis recovery.  Significant and swelling inflows of portfolio investment beginning in Q1 2009 and accelerating through Q1 2012 have supported a strong peso. 

Carry trade opportunities, worldwide liquidity conditions, and Mexico’s market-derived risk rating (the spread on credit default swaps (CDS) converted to an equivalent ratings agency grade) all enhanced the attractiveness of Mexican money market instruments for foreign investors.  In 2010, foreigners poured US$23.13 billion into money market obligations, nearly equal to direct foreign investment in the year.  In 2011, the net inflows came to US$31.65 billion (62.8% more than direct foreign investment). In Q1 2012, the net inflows were US$13.96 billion, more than three times direct foreign investment in the quarter.

Investors haven't been as keen on equities, the other component of portfolio investment. Foreign investment in Mexican equities was just US$0.64 billion in 2010. In 2011, foreigners pulled US$6.25 billion out. In the first three months of 2012, they put US$1.88 billion into Mexican stocks. 

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