Siefores expected to boost Mexican Equity Investment

The introduction of new pension legislation in Mexico under the System of Retirement Savings Act is expected to encourage investment in the country’s equity market. Mexico has had a compulsory private pension system in place since 1997 for individuals in formal employment, run by Retirement Fund Administrators or Afores. The system is monitored by the pension regulator, Consar. In March 2008, Consar allowed pension fund managers to broaden the categories of funds on offer from two to five, with asset allocation partially dependent on age. The new investment vehicles are known as Siefores.

The proportion of Siefore funds invested in equities will depend on the age of the contributor, but will be capped at 30% for individuals of 26 years of age or less. Prior to this, equity investment was capped at 15%.

Chris Palmer, Head of Global Emerging Markets at Gartmore and manager of the Gartmore SICAV Latin America Fund, believes that the change will have a beneficial effect on Mexican-listed stocks. “Afores are required to invest in indices, rather than individual securities, so we anticipate that the change will benefit stocks with large weightings but low liquidity. Early estimates suggest that change could prompt $4.5bn more investment in Mexican shares by 2010.”

Mexico’s Bolsa index gained 4.9% in USD terms in the first quarter, making it one of the world’s better performing equity markets in 2008. The Gartmore SICAV Latin American Fund has a significant overweight in Mexican stocks, relative to its benchmark, and ranks in the top decile relative to peers over one month, one and five-year timeframes.