Portfolio investment: more than ever

Portfolio investment poured into Mexico in 2012. The US$56.68 billion in portfolio investment last year more than doubled 2011’s record high. Foreign investment in Mexican stocks came to US$10.04 billion in 2012, a contrast to the US$6.57 billion outflow in 2011.  The US$46.64 billion of foreign investment in fixed income instruments was 47.4% more than in 2011.

Portfolio investment was the driver of Mexico's US$46.88 billion 2012 capital account surplus. Over the last three years, the surplus has averaged US$46.93 billion. The closest the country has ever come to surpluses of this magnitude was in 1993, when, thanks to portfolio investment, the capital account registered a US$32.34 billion surplus. In 2010 and 2011, portfolio investment comprised, respectively, 52.8% and 43.5% of the capital account surplus. In 2012, portfolio investment was 120.9% of the capital account surplus. In 1993, the proportion was 56.0%.

Forget about portfolio investment fleeing the country, as it did in 1995, the last quarter of 2009 and the first quarter of 2012. If portfolio investment diminishes substantially or ceases, the capital account surplus will plummet.

Direct foreign investment: a disappointment

Last year, incoming FDI last year was a paltry US$12.66 billion, the lowest amount since 1996 and 41.1% less than in 2011. In part, the figure was so low because of the sale of shares by a financial institution with foreign ownership. The US$4.11 billion sale appears in the balance of payments as an outflow of FDI. Foreigners purchased US$3.94 billion of the shares sold, which then are accounted for as portfolio investment. If the sale of shares is excluded, FDI would have been US$3.20 billion in Q4 instead of the US$0.91 billion outflow actually registered and FDI for the year would have come to US$16.77 billion. It is worth noting that even excluding the sale of shares, last year’s FDI would have been on a par with that of 2009, which was the lowest since 1999.

Net FDI equals foreign direct investment (FDI) in Mexico minus FDI by Mexican companies.  Last year, net FDI was negative.  FDI by Mexican companies, one of the components of the assets held abroad account, was US$25.60 billion, double incoming FDI.  FDI will jump this year if US regulators approve AB InBev’s purchase of the 50% of Grupo Modelo shares it doesn’t yet own. Depending on the conditions imposed if the deal is permitted to go ahead, the FDI it represents could well be less than the US$20.1 billion announced at the end of June 2012.

Another take on "informal" employment...

INEGI publishes a quarterly analysis of unemployment in Mexico. Since 2005, INEGI has been publishing statistics on the percentage of the economically active population (PEA, in Spanish) employed in the informal economy. That percentage ranged between 27% and 29%.

The figures for the fourth quarter of 2012 present a different take on employment in the informal economy, an approach officially published by the International Labor Organization (OIT, in Spanish) on October 31, 2012. The new methodology, adopted in December by INEGI, includes categories of workers who weren't counted in the existing measure of employment in the informal economy. The new definition counts household help, "non-protected" agricultural workers, and employees working in formal businesses who weren't registered in the Social Security Institute (IMSS).

So, what's the percentage of people employed in the informal economy? The old methodology says 27.9% of the working age population in the fourth quarter of 2012. Under the new methodology, the percentage is more than doubled - to 59.9%. Definitions matter.