South Korea’s KB Asset Management and Mirae Asset Global Investments are buying Mexican debt as a faster-than-expected economic recovery in the U.S., the Latin American nation’s biggest trade partner, boosts the currency.
KB Asset, a unit of South Korea’s second-biggest banking services group, raised holdings of Mexico in its flagship bond fund by 2 percentage points this year to 11 percent, according to Lim Kwang Taek, the Seoul-based managing director of global portfolio management at the company that oversees 25.7 trillion won ($22.7 billion) of assets. Mirae Asset, the nation’s second- biggest fund manager with 62.1 trillion won of assets, is “overweight” on Mexico in a new emerging-market fund launched in January, Kim Jin Ha, the Seoul-based head of global fixed income, said in an interview yesterday.
“The U.S. economy is faring better than previously expected, which will help further strengthen the peso,” KB’s Lim said in a March 21 interview. “The improving economy may lower Mexican bond prices but currency gains can bring greater profit, and we prefer to hold bonds than trade actively.”
The Mexican peso strengthened 8.8 percent this year to 12.8122 per U.S. dollar in Mexico City on March 22, the best performer among major currencies, data compiled by Bloomberg showed. The currency will gain 2.5 percent more to 12.50 by the end of this year, according to the median forecast in a Bloomberg News survey. Mexico’s 10-year sovereign peso notes yielded 6.26 percent yesterday, 220 basis points more than similar-maturity notes in South Korea.
Factory output in Mexico expanded to an eight-month high of 4.2 percent in January, beating estimates, while the inflation rate fell in February for the first time in five months, reports showed this month. Economic growth in the U.S. will quicken to 2.2 percent this year from 1.7 percent in 2011, according to the median estimate in a Bloomberg News survey. Latin America’s second-biggest economy sends 80 percent of its exports to the U.S.
“The U.S. government may start reducing its budget deficit from next year, and we expect mild growth to continue until the plans get specific and unless oil prices per gallon rise to and stay above $4 for long, which may slow U.S. growth,” said Mirae’s Kim. “The dependency of Mexico’s economy on the U.S. is one of the main factors behind our positive view.”
KB’s emerging-market government and agency bond fund returned 6.6 percent this year, outperforming 83 percent of its peers, according to data compiled by Bloomberg. Year-to-date returns on Mirae’s emerging local bond fund weren’t available due to its short trading history.
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