Capital flight: banks see challenge in long-term funds

MEXICO CITY (El Universal).— In a year of extreme volatility due to fears of a global recession, high inflation, and tariffs, $17 billion of so-called hot money left domestic financial markets.

This is the largest divestment since the Covid-19 pandemic, when $63 billion fled the country in two and a half years.

Since April 2024, foreigners have withdrawn their documented investments in federally backed securities, as well as in securities of companies listed on stock exchanges, according to data from the Bank of Mexico (Banxico).

This divestment represents almost double the increase recorded in international reserves over the same period. From January to March of this year alone, Banxico recorded a portfolio investment outflow of $541 million, the fourth consecutive quarter.

However, for Gabriela Siller, Director of Economic and Financial Analysis at Banco Base, the withdrawal of capital at the beginning of each year is unusual. "This hasn't happened since 2021 and 2022; before those years, capital hadn't left the country in the first quarter since 2009," the specialist pointed out.

Banxico revealed that, at the start of 2025, international financial markets, especially in the U.S., posted gains in stock markets alongside an appreciation of the dollar, while long-term yields increased.

However, at the end of February, the monetary authority noted, that trend was reversed. The deterioration in the performance of financial markets, it explained, occurred in response to various announcements and the subsequent imposition of more widespread tariffs by the United States government.

Given this environment, the Bank of Mexico emphasized that the Mexican economy continued to attract financial resources primarily through direct investment, which is made in tangible assets, such as machinery and equipment, as its purpose is to create lasting interest for economic or business purposes.

Portfolio management, on the other hand, is carried out in financial assets, so it is easy to leave the country.

BBVA México highlighted that direct investment reached $19.807 billion between January and March, suggesting that the benefits of integration into global value chains continue, despite uncertainty surrounding U.S. trade policy.

Juan Hernández, CEO of Vanguard Latin America, stated that Mexico is now seen as by far the most attractive in the region.

But he emphasized that 70% of the industry invests in short-term fixed-income funds, something he considered positive given the impact of the high real rate.

However, for investments over the next 10 to 20 years, the short-term rate won't "serve you well," because if it's at levels of, say, 10%, it will drop to 4% in three years. Within that context, he considered how to channel those savings into more sophisticated portfolios.

For UBS, liquidity, diversification, and protection against extreme scenarios remain priorities for investors in Latin America.