Foreign Investors Flock Back to Latin America in Third Quarter Reuters
go to original November 27, 2012

Foreign investors almost tripled their investments in stocks and bonds in major Latin American economies in the third quarter, although concerns about the U.S. fiscal cliff may weigh toward the end of the year.

Foreign portfolio investment flows into Brazil, Mexico, Chile, Venezuela and Peru rose 170 percent to $34.7 billion in the quarter, after shrinking in the second quarter amid market jitters on Europe, data released by local authorities showed.

Flows still fell short of the $35.4 billion recorded in the first quarter, which were the strongest in more than a year.

Early signs for the fourth quarter, based on figures from funds tracker EPFR, suggest investment in the region is holding up.

EPFR data, which is seen as a leading indicator of investment flows, showed inflows to Latin American bond and equity funds of more than $5 billion in the first eight weeks of the fourth quarter, compared with about $2.4 billion of inflows in the comparable period of the third quarter.

Bank of America Merrill Lynch economist Marcos Buscaglia said he expected flows to slow toward the end of 2012 if the United States failed to make progress in negotiations around a looming combination of tax hikes and spending cuts.

"The strong flows into Latam that we have observed in the third quarter do not necessarily imply that the fiscal cliff will not happen," he said, adding that if "The fiscal cliff discussions are somewhat convoluted, basically capital flows to the region will decelerate."

Buscaglia calculates that Chile would be the worst affected country in the region if capital flows dry up as risk aversion increases, suffering a 1 percentage point hit to growth.

Chile's small, export-dependent open economy has boomed on the back of foreign investment, posting 5.7 percent growth in the third quarter compared with a year earlier.

Central bank data shows $3.7 billion in foreign portfolio investment inflows for Chile in the third quarter.

Brazil, the region's biggest economy, reported foreign portfolio investment inflows of $4.8 billion, almost entirely in fixed-income after a $1.2 billion outflow in equity investments in September. Brazil's benchmark Bovespa stock index has fallen nearly 18 percent since hitting a high in early March.

Mexico recorded inflows of $24.1 billion in the quarter, mostly due to almost $15 billion in inflows to local bond markets where foreign holdings have hit record highs. Peru had inflows of $838 million.

Argentina and Colombia, which account for about 12 percent of flows into the region's seven biggest economies, have yet to report third-quarter data.

Brazil is the only country to report data for October; foreign portfolio inflows eased from September to $491 million in the month.

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