Bolsonaro Has Investors Racing to Brazil as They Bolt From Mexico

(Bloomberg) -- On the threshold of populist governments taking office in Latin America’s two largest economies, contrasting comments from the incoming presidents are leading money to flow out of Mexico and into Brazil.

Investors added $367 million to U.S. listed exchange-traded funds that track Brazilian stocks and bonds last week, the biggest inflow since May 2017, according to data compiled by Bloomberg. The only emerging-market country to see outflows over that period was Mexico, with $214 million being pulled from ETFs dedicated to the country’s assets.

Emerging Market ETF Inflows Reach $2.29 Bln, Most in 10 Months

Mexican assets have underperformed peers since incoming President Andres Manuel Lopez Obrador scrapped a partially built $13 billion airport project, while his party later announced proposals to cut bank fees. Lopez Obrador may not be the only factor depressing Mexican assets though. Brazil’s incoming President Jair Bolsonaro is growing on investors amid plans to sell state-owned companies, reform the pension system and narrow the fiscal deficit, potentially attracting funds out of other emerging markets.

“Our overweight in Mexico was naturally reduced to make room in the portfolio for countries like Brazil,” said Raphael Marechal an emerging-market debt portfolio manager at Nikko Asset Management in London.

The Mexican peso and its benchmark stock index are the worst performers among emerging markets over the past month. Assets extended the decline Monday as Lopez Obrador’s party reported it intends to push ahead with proposals to reduce bank commissions, despite a statement by the incoming president that there would be no banking law changes in the near future.

Brazil’s incoming President, on the other hand, has triggered a huge rally in financial markets, with enthusiasm spreading to bank executives who see a bonanza ahead if the president-elect does what’s needed to fix the economy.

“AMLO and his technical team need to be more proactive and send the right and consistent message to reduce policy uncertainty,” said Bertrand Delgado, a strategist at Societe Generale in New York. “Otherwise, his first year in government could unnecessarily be a difficult one.”

To contact the reporters on this story: Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net;Carolina Wilson in New York City at cwilson166@bloomberg.net

To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Philip Sanders, Eric J. Weiner

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