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Mexican Growth Lures ETF Flows as Investors Turn From Brazil

Mexico is luring a rising amount of exchange-traded fund flows, signaling President Enrique Pena Nieto’s energy-industry overhaul is helping differentiate the Latin American nation from its biggest regional peer.

The gap between Mexican and Brazilian flows climbed to $570 million during the first seven business days of April, with $148.7 million of inflows to Mexico and $421.3 million in Brazil outflows. In the year to date, investors have deposited $315.1 million into Mexico ETFs and withdrawn $1.08 billion from Brazil-tied funds, for a difference of $1.39 billion, according to data compiled by Bloomberg.

Mexico gained favor among overseas investors after Pena Nieto ushered a constitutional overhaul through Congress last year to open the nation’s oil industry. Standard & Poor’s reduced Brazil’s credit rating last month to BBB-, the lowest investment grade ranking, citing sluggish economic growth and a fiscal policy that’s fueling higher debt levels.

“You look at Mexico and it’s a totally different story,” said Simon Nocera, a former economist at the International Monetary Fund who’s now chief investment officer at Lumen Advisors LLC in San Francisco. “The Mexican positive is the growth potential that you have because of all of those reforms.”

Mexico’s growth is forecast to almost triple this year to 3.2 percent, spurred by increased government spending and higher exports as the U.S. economy accelerates. Moody’s Investors Service raised Mexico’s credit rating on Feb. 5, citing projections that Pena Nieto’s constitutional changes would help boost the country’s long-term average growth rate by 1 percentage point.

Brazil’s economy will expand 1.9 percent this year, down from 2.3 percent in 2013, based on a Bloomberg survey of analysts and economists. As annual inflation has remained above the central bank’s 4.5 percent target, policy makers have raised the benchmark lending rate nine times since April 2013 to 11 percent.

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Bradley Keoun

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