Washington DC The fact that the offshore Mexican peso market is so large and that just over 80% of its operations are registered outside the country, sends a positive signal of confidence on the part of investors, warned senior economist at the Institute of International Finance (IIF), Jonathan Fortun.
“The Mexican peso is here to stay and will continue to be used as a hedge fund for investors. Even before thinking about using a yuan, they prefer to take bonds in Mexican pesos,” he said.
Interviewed by El Economista, at the end of his participation in the Annual Meeting of the members of the institute, he explained that investors, bondholders, seek to diversify their portfolios and protect themselves from risks. And that is where the Mexican peso stands out.
“Mexico is a recognized country. The institutionality and transparency of the monetary entity (Banco de México); and its integration into the production cycle with the United States is what has obviously allowed it to enjoy this attention,” he noted.
At the beginning of October, the Bank for International Settlements (BIS) released its triennial survey of central banks where it showed that 82% of operations with crosses against the Mexican peso are carried out outside the national territory, a similar proportion to that reported in the 2022 survey.
“It is a very large flow where issuers are willing to offer that type of currency, but particularly from investors who have an appetite and can expose themselves,” he commented.
Strong peso for weak dollar
Interviewed in the lobby of the Ronald Reagan Building, which hosted the Annual Meeting of IIF members for four days, he acknowledged that there is real investor interest in the Mexican peso.
“They literally want to park next to the dollar and the vehicle to do so is precisely the Mexican peso, because the economic cycles, the dynamics are almost one by one. Because of the importance, not only in the commercial sense, but in the economic cycle that Mexico has, with that of the United States.”
From his perspective, that is where the doubt comes “if Mexico really is at the level of that trust.”
“I see that, that common strategy. The Mexican peso is always going to be a natural hedging to the dollar and that is why there may also be a larger increase in the exposure of the Mexican peso.”
The IIF expert explained that “leveraging, this deleveraging that exists on the part of many investors towards the dollar, is what is causing the green currency to not be as strong as before.” It is clear that the weakness of the dollar has strengthened the peso. But it is also a fact that global investors use the Mexican peso as their hedge because of the ease with which they can enter and exit.
IMF raises alert signal
Just on Tuesday, the International Monetary Fund (IMF) warned that some emerging market currencies are often used as futures hedges and showed that the Mexican peso is one of the “currencies that are used to fix speculative positions related to carry trade.”
