The outlook for Mexican pension funds (Siefores) is positive, according to a new Fitch Ratings report. In spite of economic fluctuations, the annual return of Siefores, as a weighted average of the system, was higher in 2014 compared to 2013 results. As of Sept. 30, 2014, Basic Siefores (BS) provided an average compound annual return of 7.42% (after commissions), higher than 2013's 3.17%.
The good general performance of Siefores' returns during 2014 was supported by a healthy financial environment in Mexico, positive behavior of the Mexican Stock Exchange and of the investments by Siefores in bonds, private debt and international equity. Nevertheless, in September 2014 significant capital losses were registered in BS portfolios, both in debt and equity, due to the instability that prevailed during that month in the markets. Nevertheless, for the same period, assets under management grew 13.66% versus the same period of2013.
In addition to prevailing geopolitical problems, external factors will continue to play an important role in Siefores returns. The most relevant factors in coming months are: the U.S. economic recovery, given the pessimistic estimations on the economic activity in Europe and China; foreign investment flows to emerging economies; and interest rates, now that Fed's ended QE facing an eventual increase in rates.
In Fitch's opinion, it is important to monitor the beginning of the rising interest rate cycle in the U.S. and its impact on financial markets as well as the pressure that could be reflected in exchange rates and Mexican bond prices. A combination of the current fall in oil prices and a general rise in rates may present a macroeconomic challenge for Mexico in the medium term.
