Latin American Assets, Funds and Flows
BNP Paribas LATAFF Latin American Assets, Funds and Flows November 2015 Latin America Fixed Income/Global Markets Strategy Gabriel E. Gersztein; gabriel.gersztein@br.bnpparibas.com; +5511 3841 3421 Gustavo Mendonca; gustavo.mendonca@br.bnpparibas.com +5511 3841 3445 Samuel Monteiro de Castro; samuel.castro@br.bnpparibas.com +5511 3841 3492 Non Independent – Marketing Communication This document is classified as non-objective research. Please refer to important information at the end of the report. Summary 1.Comments 2.3.4.5.6.7.8.9.10.11.12.13.14. 2 What has happened in terms of flows over the past quarter? (1 of 3) Through 29 October 2015, debt capital markets have issued USD 74.8bn in 2015. In the same period last year, issuance was worth USD 125.5bn. This reduction was significant and led by corporates, which decreased net issuance by USD 37.8bn. Foreign participation in Mexican local public debt has been stable since April 2015; the latest rate is 35.7% (USD 127bn or 71.8% of Mexican international reserves). Brazil non-residents’ exposure to local public debt in September 2015 decreased slightly to 18.8%, from 19.1% in August 2015. This reduction did not occur due to foreigners decreasing their stakes, but rather due to locals increasing theirs. Foreign holdings represent only 33.4% of Brazil’s international reserves. In Colombia, foreigners bought COP 1.2bn (USD 386mn) in September 2015, bringing their participation rate in the Coltes market to 16.58%. Non-residents hold USD 11bn of local public debt, only 24.2% of Colombian international reserves. Core debt of the non-financial sector in Latam is less than half of advanced economies. Even after the 2008 crisis, it has been increasing at a slower pace than most advanced economies. EPFR shows that flows into EM bonds and equity in 2015 are reminiscent of past years. In a nutshell, following EPFR data, the equity rotation from EM into DM started in 2013. The bond rotation began in 2014. Foreigners’ net long position in Ibovespa futures increased to BRL 4.7bn, or +13.1%, over the last month. In the Ibovespa spot market year-to-date (YTD) inflows amounted to BRL 21.6bn. 3 What has happened in terms of flows over the past quarter? (2 of 3) During June 2015, Brazilian pension funds increased their allocation into fixed income assets by 0.7% m/m. Equities allocations, which have decreased over the last 12 months, bounced back and reported a net increase of 0.3%. Afores showed reductions in both foreign and domestic equity allocations during September 2015, totaling MXN 20bn. Foreign equites were the main driver (MXN 14bn). Superintendencia de Pensiones (Chile’s pension funds regulator) reported that the AUM of Chilean pension funds’ decreased 1.3% m/m to CLP 106,185bn. The risk profile has been unchanged. Funds with an intermediate risk profile, type C, still represent the largest allocation. Brazil’s net international investment position at the end of Q2 2015 was a USD 731bn deficit, down from a USD 670bn deficit in Q1 2015. Mexico’s international investment position was a USD 425bn deficit as of Q4 2014. Colombia’s net international investment position ended June 2015 with a deficit of USD 124bn. Chile’s net international investment position ended June 2015 with a deficit of USD 36bn. Peru’s net international investment position ended June 2015 with a deficit of USD 60bn Although there was an increase in portfolio flows over the past few years, there are signs of a slowdown in terms of more structural flows. M&A activity in the region seems to have slowed down over the past few quarters, led by Brazil. Brazil is not lacking a supply of USD. Year-to-date spot inflows are USD 9.8bn, above the USD 8.3bn and USD -5.9bn posted for the same periods of 2014 and 2013, respectively 4 What has happened in terms of flows over the past quarter? (3 of 3) BCB announced that it will rollover the maturing stock for three different tenors, rather than two. From now on, SCS contracts will be auctioned for May16, Jul16 and Sep16. This was likely in response to the market’s request to increase the number of auctioned tenors, as to facilitate market absorption. The outstanding amount of currency intervention tools held by the BCRP (swaps plus CDRs) is worth PEN 29,872mn (or USD 9,462mn), equivalent to 15.9% of international reserves. Net of resident/non-resident USD holdings, the stock of swaps accounts for 36% of reserves. Up to now, the average cost of Brazil’s domestic debt has increased substantially. The main drivers were LFT and NTN-B cost of debt. The Brazilian central bank increased the SELIC to 14.25%, but the market doesn’t seem to believe this is enough to anchor inflation expectations. According to Bank for International Settlements (BIS) data, Spain has the h
