miércoles, 28 de agosto de 2013

Peso on the move...

Yesterday, the fix exchange rate was $13.34, close to the $13.40 a dollar cost on June 21. Leaving aside the last week of June, a dollar has cost more in the last few days than at any other time in a year. The previous high was on August 20, 2012 when the fix rate was $13.42.

Movements in the second quarter capital account suggest why the peso weakened so dramatically in June and the probable cause of its most recent fall.

Portfolio investment did not pour into Mexico in the second quarter as it had in prior quarters. In fact, it left: the US$3.20 billion outflow of portfolio investment in the second quarter cut portfolio investment in the first half of 2013 to US$6.17 billion. That the last quarter in which portfolio investment fell was in the final quarter of 2008 gives pause.

"Assets held abroad" declined US$1.50 billion in the second quarter, a sharp contrast to the US$18.91 billion increase registered in the first three months of 2013. Direct foreign investment (DFI) abroad by Mexican firms doesn’t explain the repatriation of funds to the country: Mexican DFI totaled just US$1.78 billion in the second quarter, a third of its level a year earlier. In fact, Mexican DFI has been quite restrained this year. At US$3.73 billion in six months, it is only 28.6% of its level in the first half of 2012.  

Neither do Mexican deposits in foreign bank accounts explain the repatriation of assets held abroad: those rose US$5.07 billion.

What does explain the inflow in the assets held abroad account is the repatriation of US$8.35 billion in its “other” component. It is the largest inflow we’ve seen in this account since the fourth quarter of 2008, when US$18.09 billion came back into Mexico. Governmental treasury management decisions are probably reflected in this account.

Here's some food for thought: both portfolio investment flows and the reason for the inflow of capital in the assets held abroad account in the second quarter of this year are similar in direction to what we saw in the last quarter of 2008.

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