With the economic reactivation, one of the biggest fears, especially of the Bank of Mexico (Banxico), comes to the fore: inflation. Little by little, people increase their spending, companies sell more, increase their production, need more employees, families have higher incomes and together with the increase in demand comes the rise in the prices of products and services. Since March, inflation in Mexico shot up above Banxico’s target range of 3% (+/- one percentage point) to climb at an annual rate of 6.02% in the first half of June.
The specialists already saw it coming, the monthly survey on the expectations of the specialists of the private sector of Banxico forecasts that general inflation will close the year at 5%. But how long will inflation stay off track? The answer does not find consensus and investors remain expectant, as it could cause central banks, mainly the United States, to put an end to financial stimuli.
Everything seems to indicate that the end of the money party is near, but investors have the opportunity to accommodate their portfolio not only to protect themselves from inflation, but to take advantage of it, it is enough to look at two markets: the fixed income (debt ) and real estate.
A look at the bond market
Within the debt market, investors in Mexico can find an instrument with attractive returns in a scenario with low interest rates and rising inflation: the Udibonos.
Udibonos are medium and long-term debt securities issued by the government (with maturities of 3,5,10, 20 and 30 years) that are linked to inflation.
“As its nominal value adjusts against inflation, it protects you against the loss of value of the bond, since the coupon you pay in pesos will increase,” explains Luis Manuel Gonález, professor of accounting and finance at Tec de Monterrey.
But there is an additional factor to take into account: the rise in Banxico’s benchmark rate (one of the central bank’s tools to contain inflation), which went from 4% to 4.25% this month.
The fixed income market, unlike the variable income market (stocks), has an inverse relationship with the interest rate. In the words of Western Assets “as interest rates rise, the value of fixed income securities decreases.”
Real estate investment
Inflation impacts the value of the real estate market that year after year increases its prices, González points out.
There are three ways to access this sector, the Swiss investment bank Julius Baer pointed out in a report: acquiring real estate, investing in private funds with exposure to the sector or through fixed capital real estate funds.
For Julio Escandón, general director of Banco Base, one of the sectors with the greatest growth at the moment is the “middle residential” in some cities in the northern zone such as Monterrey, Tijuana, Guadalajara and to a lesser extent Mexico City. “I attribute it to low rates and I don’t see it as a bubble,” Escandón says.
You just have to take into account that there is the necessary liquidity in this type of investment, that is, that the investor can sell in a certain time and thus collect the performance obtained in the period, experts and fund managers agree. “Liquidity has a price, it is not given for free,” says Baer.
