Mexico's new measures that aim to strengthen the financial sector are credit positive for local pension funds, known as Afores, Moody's said Jan. 14.
The announced regulations include fiscal incentives for initial public offerings, a more flexible investment regime for the Afores and permission for the pension funds to take part in repurchase agreements, or repos.
Moody's expects that the lowering of the income tax rate for IPOs to 10% will raise the number of pension funds' IPO investments while also increasing their returns on such asset class. Meanwhile, more flexibility in investments will allow the funds to invest in new categories of securities, in turn boosting portfolio diversification and reducing the concentration of government securities in their portfolio.
Allowing the Afores to sell repos will improve their liquidity management, as an option to monetize securities will enable the funds to use proceeds from temporary asset sales in countering negative market fluctuations, Moody's added.
The new measures are positive for the whole pension sector, although bigger players with greater portfolio diversification are expected to benefit first from them, the rating agency said. These pension funds include Afore XXI-Banorte SA de CV, Afore Banamex SA de CV, Profuturo Afore SA De CV and Afore SURA SA de C.V..