Latin American assets, funds and flows

Non Independent – Marketing CommunicationThis document is classified as non-objective research.This document is provided to you on a confidential basis. It must not be circulated, distributed, reproduced or disclosed to any other person without the prior written consent of BNP Paribas. The products described in this material are structured products. They are designed for sophisticated investors. Prospective investors should give careful consideration to the risk factors and disclaimers in evaluating the merits and suitability of an investment in the structured product. The attention of the prospective investors is drawn to the disclaimers set out on the last page of this document. BNP PARIBAS LATIN AMERICA GM STRATEGYLATAFFLatin American assets, funds and flowsQ2 2016GABRIEL GERSZTEIN; HEAD OF LATIN AMERICA GM STRATEGY - GABRIEL.GERSZTEIN@BR.BNPPARIBAS.COM - +55 11 3841 3421SAMUEL CASTRO – SAMUEL.CASTRO@BR.BNPPARIBAS.COM - +55 11 38413492GUSTAVO MENDONCA – GUSTAVO.MENDONCA@BR.BNPPARIBAS.COM - +55 11 3841 3445 SUMMARY1. Comments2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.2 FLOWS OVER THE PAST QUARTER (1 OF 4)Allocation proxy in Brazil local macro hedge funds: Positions remain bullish on equities, receiving rates and long FX, butsubstantially lower than in previous weeks.Using the daily fund performance of each EM local currency debt fund (NAV t / NAV t-1) against the benchmark, weconstructed an index of performance and each fund’s rolling alphas and betas, using as weights the NAV of each of the17 funds. Dedicated funds were largely neutral and underweight until 2015.Debt capital markets have issued USD 64.9bn so far in 2016. In just half the year, net issuance represents more than80% of total issuance in 2015.From March to May 2016, the Institute of International Finance (IIF) showed that EM non-resident portfolio investmentflows have returned to positive, after having posted outflows since the second quarter of 2015.We used the monthly EM flows reported by the IIF to construct a tool in order to (a) project one month ahead thetheoretical flows into EM using macroeconomic and market variables; (b) measure the response of the outflows when ashock in expected US monetary policy takes place; and (c) analyse the cyclical component of inflows and outflows inorder to calculate the duration of the cycle and turning points.Flows into Brazilian ETFs were markedly negative last year, but have rebounded in 2016. Year to date, 2016 Chilean,Peruvian and Argentinean ETF flows have been much higher than in 2013-2014.Foreign participation in Mexican local public debt has slightlydecreased over the last few months. The latest rate is 34%(USD 102bn or 57.9% of Mexican international reserves) as of 13 June 2016.3 FLOWS OVER THE PAST QUARTER (2 OF 4)In Brazil, the share of non-resident holdings in total public debt has decreased to 16.6% from 20.8% one year ago.Foreign participation in Brazil has decreased steadily throughout 2016 so far.Foreign investors’ share in Colombian debt increasedto 19.51% in May 2016. In the last three months, foreigninvestors have bought COP 8.1trn (USD 2.7bn) in the local bond markets.Foreign investors’ share of Peruvian debt has been decreasing since the end of 2013, when it reached its highest levelat 56.66%. The last report showed foreign participation at 41.2%: the highest in Latin America.Core debt of the non-financial sector in Latam is less thanhalf that of advanced economies. Even after the 2008 crisis,it has been increasing at a slower pace than most advanced economies.Mexican government external debt as a percentage ofGDP has increased since December 2006, but governmentexternal debt adjusted by reserves has been relatively stable. Chilean corporate external debt has reached very highlevels.Year to date inflows into Ibovespa stocks are BRL 12.1bn.There were huge inflows in March 2016 of BRL 8.4bn, whichaccounts for almost 70% of this year’s inflows.Brazilian investment funds: Fixed income funds were the top performers in the last 12 months, with their AUMincreasing by BRL 196.2bn or 14.8%. Brazilian pension funds show the same trend, fixed income investmentscontinue to attract the largest share of allocations.Throughout May 2016, Mexican funded pensions Afores’ total AUM increased by a small 0.1%. Inflows were positive atMXN 17bn. The estimated loss from asset depreciation was USD 15.2bn.4 FLOWS OVER THE PAST QUARTER (3 OF 4)Superintendencia de Pensiones (Chile’s pension fund regulator) reported that the AUM of Chilean pension fundsincreased by 1.68% m/m to CLP 112,674bn in May 2016.Brazil’s net international investment position at the end of April 2016 was a USD 570bn deficit, up from a USD 517bndeficit in March 2016. Mexico’s international investment position was a USD 424bn deficit as of Q1 2016. Colombia’s netinternational investment position ended March 2016