Viewpoint | José Arnulfo Rodríguez San Martín
Mexico: the smart investment alternative
José Arnulfo Rodríguez San Martín, Deputy Director of Investment Analysis at brokerage house Acciones y Valores Banamex reviews the economic fundamentals and market forecasts to make his case*.
In this Summer’s Olympic Games, the Mexican Olympic team won the football gold medal in a decisive match against favourites Brazil at Wembley Stadium. This event raised a question – is it possible for the Mexican financial markets to emulate the success of its soccer team and become the best asset allocation alternative for international capital markets for the remainder of 2012, 2013 and even the years to follow? I would suggest that the economic fundamentals and market prospects make that a real possibility. My key arguments leading to this conclusion are: ● The healthy state of public finances, favourable external accounts and improved growth prospects.
● The political possibility that long-awaited structural reforms in the field of public finances, labour and energy could be implemented and executed, which could in turn lead to an improvement in Mexico’s sovereign debt rating – presently rated one notch above investment grade – and steer the country onto a path of stable growth.
● The prospect of high returns in both equity and bond markets. The first sustained by strong local market performance and the second due to the high yields offered by local government bonds that could represent a clear credit arbitrage opportunity for international investors, especially when the solid Mexican public finances are considered.
Best Execution | Autumn 2012
Market performance In spite of the adverse international financial and economic environment, the Mexican Stock market will probably be one of the most profitable markets in 2012 and certainly has been the most resilient one over the last few difficult years. Looking ahead, higher economic growth expectations for Mexico linked to higher expectations for economic recovery in the US, lead to a positive forecast for Mexican stock markets. This perspective, while being good in itself, could be greatly improved by the approval of important structural reforms and the upgrade of Mexico’s sovereign debt rating before mid-2013.
Fig 1. Mexican Stock Market Performance (USD) 2008
Performance: -39%
4000 2009
Performance: +55%
2010
Performance: +29%
2011
Performance: -13%
2012
Performance: +18%
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55
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