Since October of last year we’ve witnessed a gradual downfall of the Mexican structured retail products market (209% decrease in issuance). The main culprit is the constant depreciation of the Mexican peso against the US dollar, caused by the falling of the oil prices with more than 50% from the summer highs (source: http://www.oilprice.com/).
Usually the most popular payoff type in Mexico is the dual currency, which obviously got negatively impacted by the depreciation of the Mexican peso. This December only 100 dual currency structured products were added to our database, compared with 254 products of the same payoff type in December 2013.
How did the market react? The issuers made sure to increase the capital protection of the structured products in order to attract investors by lowering the risks. We can see in the graphic below that in December of 2014 we’ve had more 100% protected products and even one product with minimum possible return of 100.7% irrespective of the performance of the underlying (Barrera Europea a la alza USD/MXN - 3.0025% p.a., issued by BBVA on 8th of December).
Additionally, we’ve witnessed the usage of various underlyings for the first time in 2014 in the Mexican structured retail products market. It’s another attempt of the issuers to waken the interest of the investors by increasing the assortment in the market and provide intriguing alternatives. According to our database, in 2013 were used 33 different underlyings, while in 2014 the number has almost doubled – 59 underlyings. Some of the newly used underlyings are: Yahoo, Eurostoxx Banks, Johnson & Johnson, Kimberly-Clark de Mexico, MXN/GBP, and a basket of stocks composed of Alfa, Alsea, Cemex, Grupo Sports World.
Also, on Monday (26/01/2015) Mexico launched a mechanism for negotiating instruments of government and corporate debt with low liquidity. The main purpose of this “move” is to increase the liquidity in the local secondary market. The new electronic platform is called “Subasec” and made its debut on Monday with the issuance of securities of Pemex (the state oil company), with maturity in 2024, and of the telecommunications giant America Movil, due to 2020. For now Subasec is going to provide only products rated with “AAA” and with sales volume higher than MXN3,000m (≈$205m). According to Fernando Aportela, Deputy Finance Minister of Mexico, the platform will increase the liquidity in the bond market and will facilitate the operations.