20160703-法国巴黎银行-Latin_American_assets,_funds_and_flows_94页_3mb

Summary of BNP PARIBAS LATIN AMERICA GM STRATEGY LATAFF

Core Content

This document outlines the financial and investment dynamics in Latin America, focusing on market trends, foreign investment flows, debt issuance, and reserve adequacy as of Q2 2016. It is a non-independent marketing communication and non-objective research, intended for sophisticated investors. The report provides insights into the performance of local macro hedge funds, investment funds, pension funds, and the broader market environment.

Main Points and Key Information

1. Market Trends and Investment Flows

• Brazil Local Macro Hedge Funds: Positions remain bullish on equities, receiving rates, and long FX, though lower than previous weeks. The funds have shown a neutral to underweight stance until 2015.
• EM Debt Issuance: Debt capital markets have issued USD 64.9bn in 2016, representing more than 80% of the total issuance in 2015 in just half the year.
• IIF Flows: From March to May 2016, EM non-resident portfolio investment flows returned to positive after outflows since Q2 2015. Inflows into Brazilian ETFs rebounded in 2016, while Mexican and Colombian ETF flows were low.
• Foreign Participation in Debt:
  • In Mexico, foreign participation in local public debt decreased slightly to 34% as of 13 June 2016.
  • In Colombia, foreign participation increased to 19.51% in May 2016, with USD 2.7bn of purchases in the local bond market.
  • In Peru, foreign participation in debt decreased from 56.66% in 2013 to 41.2% as of the latest report.
• ETF Flows:
  • Chilean, Peruvian, and Argentinean ETF flows in 2016 were much higher than in 2013-2014.
  • Brazilian ETFs had marked negative flows last year but have rebounded in 2016.

2. Investment Fund and Pension Fund Performance

• Brazilian Fixed Income Funds: AUM increased by BRL 196.2bn or 14.8% over the last 12 months. Fixed income continues to be the largest allocation for pension funds.
• Mexican Pensions (Afores): Total AUM increased slightly by 0.1% in May 2016, with positive inflows of MXN 17bn, though asset depreciation caused a USD 15.2bn loss.
• Chilean Pension Funds: AUM increased by 1.68% m/m to CLP 112,674bn in May 2016.

3. Balance of Payments and FX Flows

• Brazil: Net international investment position deficit was USD 570bn at the end of April 2016, up from USD 517bn in March 2016. Year to date spot outflows were USD 5.0bn.
• Mexico: Net international investment position deficit was USD 424bn as of Q1 2016. The CCB bought almost USD 46bn in FX swaps from March to May 2016.
• Currency Risk: The report suggests that there is still a demand for a premium to hold Mexican assets due to currency risk.

4. M&A Activity

• M&A activity in Latin America has softened in recent quarters but is expected to rebound due to weaker currencies.

5. Debt Issuance and Market Breakdown

• Debt Issuance Volume (USD mn):
  • 2012: 115,389
  • 2013: 117,483
  • 2014: 135,189
  • 2015: 78,557
  • 2016: 64,872
• Number of Issues:
  • 2012: 181
  • 2013: 206
  • 2014: 195
  • 2015: 108
  • 2016: 61
• Average Issue Size (USD mn):
  • 2012: 638
  • 2013: 570
  • 2014: 693
  • 2015: 727
  • 2016: 1,063

6. International Exposure and Reserve Adequacy

• BIS Data: Spain has the highest exposure to the Latin American banking system (31% of total foreign claims), with the largest exposure to Mexico, followed by Brazil.
• Reserve Adequacy: All Latin American countries are within the optimal reserve ratio according to the IMF standard approach.
• Mexico: The share of non-resident holdings in total public debt decreased to 16.6% from 20.8% one year ago. Non-resident holdings in Mexican public debt represented 33.7% of Brazil's international reserves (USD 375bn).
• Peru: Dollarization has been well-controlled, with USD-denominated credit stabilizing below 30% of total credit.
• Colombia: The central bank halted its FX intervention program on 27 May 2016.

7. Speculative Positioning

• MXN Speculative Position: Non-resident investors are still net short MXN by USD 1.83bn.
• USDBRL Positions: Total non-resident long USDBRL positions on the BM&F Bovespa exchange are at USD 25bn, down from USD 42bn at the end of May 2015.

8. Market Timing and Performance Analysis

• The Treynor-Mazuy model was used to test market timing capacity, adding a quadratic term to the CAPM equation.
• The hypothesis tested was $ H_0: \gamma \leq 0 $ (no market timing) against $ H_1: \gamma > 0 $ (market timing).
• Results showed that local macro hedge funds have been able to 'beat the market' with a positive $\beta$ and significant p-values. However, $\gamma$ was negative, indicating that strategies have been more momentum-based than market-timed.
• $\alpha_p$ was positive, suggesting the ability to select undervalued assets.

9. Conclusion

• The report concludes that the market timing ability of local macro hedge funds has been limited since 2015, with a focus on momentum strategies.
• The risk of a balance of payments crisis leading to convertibility risk is considered low across Latin America.
• EM flows are expected to remain positive and above average in June 2016, with a cyclical pattern observed.