The emerging markets that we've come to know so well, the BRIC
countries, are finally coming to an end -- at least, as emerging
China and Brazil are moving away from having industrial
economies and are becoming ever more consumption-driven. India
continues to suffer from a depreciating rupee and a poor economy,
and Russia remains an unpredictable political quagmire.
A paradigm shift in global industrial manufacturing is
beginning to take place, and areas like Indonesia, West Africa
and Latin America could emerge as the next bull markets for
investors. As the U.S. economy rebounds, it will undoubtedly
remain consumer-driven, which is good news for one country in
The U.S. accounts for 78% of this country's exports, with the
five largest U.S. import categories last year being electrical
machinery ($56.8 billion), automobiles and parts ($53.5 billion),
machinery ($42.3 billion), mineral fuel and crude oil ($39.9
billion), and optical and medical instruments ($10.4
Unlike the slowing growth in China, this country's GDP is
expected to grow 4% in 2014. It represents twice the growth rate
expected in the United States and beats the region's largest
powerhouse, Brazil, whose growth is expected to be only 2.7% this
year, the same as in 2011.
The country I'm talking about is Mexico.
Like other emerging-market currencies that have struggled this
year against the relative rise in the U.S. dollar, the peso has
dropped 7% against the dollar, but it remains higher than other
Latin American countries. But make no mistake: The dollar is
extremely likely to fall due to the Federal Reserve's
quantitative easing (QE) programs, and Mexico's currency could be
a temporary safe haven for investors when inflation finally rears
its ugly head in the U.S. economy.
||Mexico's currency could be a temporary safe haven for
investors when inflation finally rears its ugly head in the
The numbers in Mexico are encouraging. Inflation is a
manageable 3.6%, public debt is just 35% of GDP, and industry
makes up 34% of the economy. The average age of the population is
29, and wages are expected to be less than China's in the next
five years, making Mexico a cheaper source of labor.
In addition, Mexican President Enrique Pena Nieto has made
tremendous strides in improving the country's global outlook. He
has pushed for labor reform, increased investments in the
telecommunications sector, and recently led a change in the
country's energy policy, which had long been a government
monopoly. Nieto's plan of profit- and risk-sharing contracts
should create a freer energy sector that could spur investment
growth by an additional $13 billion per year and add as much as 2
percentage points to potential GDP growth.
Here are three ways to invest in the new dynamic Mexico:
A broad-based investment into the Mexican economy either
iShares MSCI Mexico Investable Market Index (
Mexico Fund (
-- a favorite of StreetAuthority analyst Amy Calistri -- are good
ways to establish a position. These funds not only have exposure
to the manufacturing sector, but also to energy, health care and
media -- sectors that are benefiting from political reforms and a
growing Mexican middle class. The Mexico Fund has a powerful
incentive for investors as well in the form of a hefty 10%
Grupo Televisa (
is a broadcasting company that is set to take advantage of growth
in several areas. The increase in the United States' Hispanic
population means there are 53 million potential users of
Spanish-language networks like Univision. Grupo Televisa receives
royalties from licensing its programs to Univision, and revenue
is expected to top $270 million this year. The emergence of
Mexico as a manufacturing powerhouse means that the middle class
should see a boost as well. Pay TV is popular in Mexico, as seen
by a 12% rise in that segment's revenues from last year.
Operating margins are improving as well, increasing from 17% in
2011 to 26% as of the most recent quarter.
Grupo Simec (
is a relatively obscure company with a $1.7 billion market cap
that makes special bar-quality steel for North American markets.
The company has significant downside protection in the form of
its cash and cash equivalents of $623 million and total
liabilities of just $665 million. Simec is also aggressively
buying back stock. On a technical level, the relative strength
index is hovering around 31, signaling that the stock may be
Risks to Consider:
Mexico has been plagued by drug violence that will continue
to drag on its economy if the government cannot implement new
policies to curb trafficking.
Action to Take -->
The larger macroeconomic movements stemming from Nieto's reform
policies have yet to really take hold in the market, providing
investors with an opportunity to buy ahead of the trend.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.