Last week the Wall Street Journal
reported that the steadiness of Mexico's debt has substantially increased the
amount of international investment money that is flowing into the country,and
overseas investment in the peso is reaching an all time high.
According to the report,
contributing factors to this encouraging trend include the macro stability of
the Mexican financial system,as well as the growth prospects of the economy as
a whole. Mexico's Central Bank also reassures investors by dismissing
apprehension and consistently preventing any mass departure of foreign funds.
In the wake of the global
recession,foreign investment in Mexican local-currency debt has been fueled by
attractive returns with a low to moderate risk. The influx of capital has allowed Mexico to grow a highly
diversified cash cushion should another round of recession hit the worldwide
financial markets. In addition to deepening the local debt markets,the inflow
has strengthened the peso outright.
Central bank data figures have
documented a record 802 billion pesos ($68 billion) in foreign investment in
peso-denominated government securities. Sergio Luna,of Citigroup Inc. (C) unit
Banamex,said investors are enthralled by Mexico's strong economy and
expansion,which supersedes growth in other markets. "Mexico has been the
ugly duckling for many years. But now the macro economy has shown that it can
handle all these shocks,like it did swine flu," Luna said
The bond buying has lent strength
to the peso,which has appreciated 9% against the dollar over the past year.
The peso recently traded at MXN11.75. Building on a 5.4% expansion in 2010,the
Mexican economy is expected to grow by as much as 5% this year.
It is estimated that 70% of the
overseas assets in peso bonds are tied up as long-term investments. However,
increased holdings over the past year have occurred in shorter-dated Cetes.
International investors now own an average of 33% in outstanding Cetes compared
to a mere 6% 12 months ago.
Banamex's Luna also said he does expect any slowdown of foreign
investment to be negligible. Mexican debt holdings have comparatively imitated
the rally in U.S. debt securities as of late,he noted,giving added
encouragement for investors.