Afores Boost Mexican Stock Market Investments to 6.84% of Managed Assets
Context and Relevance of the Story
In September, Mexican pension fund managers, known as Afores, significantly increased their investments in domestic equities, reaching a two-year high of 6.84% of their managed assets. This development comes during a period when Mexican stock markets have shown robust growth, with local indices registering strong returns.
Investment Growth in Domestic Equities
In September, Afores’ investments in domestic equities rose to 6.84% of their portfolios, up from 6.11% in the same month last year. This increase marks the highest level since October 2023, when it stood at 6.86%. The growth in Mexican equities occurred in a month when the Mexican stock market returned over 7%.
- S&P/BMV IPC, managed by the Bolsa Mexicana de Valores (BMV), increased by 7.17% to 60,773.78 units.
- FTSE-BIVA, managed by the Bolsa Institucional de Valores (BIVA), gained 7.03% to 1,212.35 points.
On an annual basis, both indices have shown substantial advances: S&P/BMV IPC has risen by 23.82%, and FTSE-BIVA by 21.65%.
Shift in Investment Focus
Despite the increased investment in domestic equities, Afores continue to hold 51.53% of their portfolios in government instruments, such as federal development bonds (Udibonos) and Certificados de la Tesorería de la Federación (Cetes).
Investments in international equities decreased from 14.10% in September 2023 to 13.13% currently. Meanwhile, investments in structured products fell from 8.44% to 8.19%, while Fibras (real estate investment trusts) saw an increase from 2.56% to 2.99% of their portfolios.
Experts’ Perspectives on the Shift
Carlos Hernández García, an independent financial analyst, noted that the rise in Afores’ investments in domestic equities coincides with a significant performance by the IPC, close to 25% in pesos, indicating strong interest in Mexican assets.
“The preference for Mexican assets is likely supported by undervalued valuations. Furthermore, the decrease in Mexico’s risk premium, coupled with the appreciation of the Mexican peso, has encouraged investment in Mexican equities.”
Felipe Mendoza, an analyst at ATFX LATAM, attributed the shift to factors such as moderating inflation, expectations of a less restrictive stance by Banxico (Mexico’s central bank) towards the end of the year, and the resilience of key sectors like consumer basics, finance, and energy.
“Additionally, Mexican valuations appear more attractive compared to other emerging markets, opening opportunities for portfolio reallocation towards higher-risk assets.”
Giselle Abdo, a financial analyst at Capitaria, explained that lower interest rates set by Banxico have driven investors, including Afores, to seek higher-potential options like equities instead of fixed-income instruments.
“When interest rates fall, government bonds and Cetes become less attractive due to lower returns. Investors then look for alternatives with greater growth potential, such as equities.”
Regulatory flexibility introduced by Consar, the National Commission for the Savings System for Retirement, has also encouraged more dynamic portfolio management.
“Another crucial factor is the increased international diversification allowed for Afores, enabling them to reduce country risk and capitalize on more developed economies or high-potential sectors. Investing abroad also helps mitigate local market volatility impacts.”
Future Outlook
Experts anticipate that caution will increase as the year ends, but the pace of growth will depend on market revaluation, stock performance, economic prospects, and investor appetite for equities, particularly those linked to Artificial Intelligence (IA).
“Looking ahead, I expect a more measured revaluation of Mexican equities, a more solid outlook for economic growth, and continued demand for risk assets supported by a global preference for AI-related stocks.”
Key Questions and Answers
- What is the main reason behind Afores’ increased investment in Mexican equities? The primary factors include undervalued valuations, decreased Mexican risk premium, and appreciation of the Mexican peso.
- How have Mexican stock markets performed recently? Both the S&P/BMV IPC and FTSE-BIVA have shown strong growth, with annual advances of 23.82% and 21.65%, respectively.
- What are the current investment allocations of Afores? 51.53% of their portfolios are in government instruments, while investments in international equities have decreased to 13.13%. Structured products saw a slight decline from 8.44% to 8.19%, and Fibras increased to 2.99%.
- What factors are driving the shift in Afores’ investment strategies? Lower interest rates set by Banxico, regulatory flexibility from Consar, and more attractive Mexican valuations compared to other emerging markets have all played a role.
- What are experts’ expectations for the remainder of 2023? Caution is expected to rise, but growth will depend on market revaluation, stock performance, economic prospects, and investor appetite for equities, especially those linked to Artificial Intelligence.
