Some 10.8 billion dollars in financial investments entered Latin American countries in the month of March, a considerable monthly flow not seen in almost a year, triggered by the Russian invasion of Ukraine that generated uncertainty and increased risk in the economies of Eastern Europe. this, according to the banking employers Institute of International Finance (IIF, for its acronym in English).
Unlike direct investment, which is for real estate, businesses and assets, financial investment is one in securities listed on the stock market, mostly stocks and debt bonds.
Capital flows are, therefore, the bets that global investors make through financial investment, looking for the instruments that offer the best returns at an attractive price and offer a level of risk that they are willing to absorb.
"They are a mirror of how investors are evaluating a region or a country," explains Jonathan Fortun, an economist at the IIF.
"Everything is relative and since the war, the perception of risk in affected markets has worsened, which makes Latin America more attractive in comparison," says the specialist, whose data collected during the month of March show considerable disinvestment from countries such as China and Poland, while large flows entered Latin American countries in proportion to their size.
The countries that benefited the most were Brazil and Mexico, as they were the largest, followed by Chile, Colombia and Peru.
Argentina is the great exception, since, having defaulted on its sovereign debt, it does not have access to markets.
These flows explain, at least partially, the appreciations of currencies in the region.
In Brazil, according to data from the Natixis investment bank, the real appreciated 7.4% during March, while in Colombia the peso appreciated 4.2% and in Mexico, 2.8%.
The decision by central banks in Latin America to raise interest rates in recent months to contain inflation has also been a factor, Fortun says.
"They have become marginally more attractive, especially bonds, compared to other countries that have not raised their interest rates as much," says the economist.
The flows to Latin America are particularly significant when taking into account that, during the same period of time, there was a net outflow from emerging markets of 9.8 billion dollars.
In other words, all emerging markets, as a whole, lost capital, while Latin America, an emerging group in itself, saw the highest increase in the last ten months.
“We see investors with increased risk sensitivity as anxiety about geopolitical events, tighter monetary conditions, rising inflation and fears that many economies will not recover quickly enough from the pandemic grow.
In general, the first quarter of the year has seen investors become more selective”, says an IIF report.
For their part, market strategists at investment bank Mizuho agree with this analysis.
“Faded hopes for a Russian-Ukrainian ceasefire agreement helped keep capital flowing to Latin America,” they wrote this week, “as the region is less directly exposed to the economic fallout of the war compared to other countries. Eastern European economies.
The IIF data not only confirms this trend, but also shows a strong outflow of capital from China.
"The specific reasons why they are leaving China are debatable," says Fortun.
During February and March, the Asian country also suffered intermittent confinements due to covid infections, something that has no longer been seen in advanced economies.
This limited production and generated disruptions in supply chains worldwide.
What is not yet known is if it is a single occasion or if it will be more sustained.
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