What is the first thing you think of when I say "Mexico"? It's a
good guess that very few Americans would respond: "dynamic, diverse
economy," "manufacturing powerhouse," "attractive young leader," or
"enviable macroeconomic fundamentals." But investors ought to be
smarter than average here.
The Mexico we mostly see in our media is a teeming, teetering state
whose most notable products are drug violence and illegal
immigrants. President Obama flew to Mexico City yesterday trying to
shift the focus to the country's economic achievements and promise,
but the press back home was having none of it.
spun Obama's embrace of telegenic Mexican counterpart Enrique Pena
Nieto as a ploy to push immigration reform on Capitol Hill. The
New York Times
lede bore in on the two presidents' determination to "avoid
engaging each other on the two most delicate, contentious issues
between their countries:
overhaul in the United States and Mexican efforts to confront drug
did actually devote a few sentences to the Mexican economy,
concluding: "The portrait of Mexico 'on the rise,' as a US official
puts it, is disputed."
Disputed by whom, exactly? Not by equity investors, presumably.
They have bid up the value of Mexican stocks by 20% since the
46-year-old Pena Nieto was elected last July, as measured by the
iShares MSCI Mexico ETF
(NYSEARCA:EWW). That matches the gain for the
(INDEXSP:.INX) and leaves broader emerging markets in the dust. The
iShares S&P Latin America 40 Index Fund
(NYSEARCA:ILF), for instance, has gained about 9% over the same
time period. (Mexico has a long interregnum, so Pena Nieto actually
assumed office only in December 2012.)
It would be hard to quibble with Mexico's numbers, too. Economic
growth has been chugging along at 4% or so for the past four years
- way outpacing Brazil, which is supposed to be the regional
powerhouse, not to mention the good old USA. Public debt is an
enviable 35% of gross domestic product, inflation is a calm 3.6%.
Industry accounts for a muscular 34% of the Mexican economy
compared to 18% for the US.
And the outlook is for better times ahead. Mexico's attractions for
US goods producers are only increasing as costs and labor frictions
rise in China. Much of the vaunted rebound in US manufacturing may
actually turn into "near-sourcing" in northern Mexico, which is of
course linked to El Norte by the Clinton-era North American Free
Trade Agreement. A survey taken late last year by consultant
AlixPartners found that 50% of firms that were contemplating
relocation from China were
as an alternative, compared to 35% for "onshore" USA.
Inside Mexico, Pena Nieto was elected as a pragmatic economic
modernizer, and shows signs of delivering. He has already taken on
one enormous special interest that was stifling the Mexican
economy, Carlos Slim's telecommunications empire, and has his
sights set on the granddaddy of them all, state oil monopoly Pemex.
This icon will not be privatized any time soon. But the new leader
is looking to claw back its reach, opening Mexican hydrocarbons to
alternative investors who could theoretically give a jolt to
production and the national coffers.
Pena Nieto is also quietly rethinking the madness of getting tens
of thousands of Mexicans killed in America's hopeless drug war. He
has significantly pared back US law enforcement's access to Mexico,
presumably one of those subjects he and Obama agreed not to air at
their post-summit press conference.
There is one tactical dilemma attached to buying a little Mexico:
It is hard to invest in the country writ large without getting
exposure to zillionaire Slim's besieged
), the largest Mexican company by far with a US ADR listing. The $3
billion iShares MSCI fund is pretty much the only game in town for
, and America Movil represents 18% of its underlying shareholdings.
The fund was in fact soaring ahead of the S&P until early
February, when analysts began to take seriously Pena Nieto's threat
to trust-bust America Movil, which controls 70% of the Mexico's
cellular market and 80% in fixed-line. The president duly laid out
his plan in early March and it was passed by the Mexican senate a
few days ago.
That is all good policy for Mexico - the Slim monopoly costs
consumers and businesses $25 billion a year in gouged prices,
according to the Organization for Economic Cooperation and
Development - but of course bad for America Movil's bottom line.
The shares have lost 15% since Feb. 5, and the broader Mexican
market has treaded water since then.
However, it looks like the bad news might be priced into America
Movil at this point. The stock bottomed out in mid-March and has
limped back a bit. Otherwise investors could bet directly on other
Mexican companies traded on US exchanges. The two most solid lately
have been cement maker
), which between the upturn in US housing and the Pena Nieto bounce
has nearly doubled since last July, and top domestically-owned bank
Grupo Financiero Banorte
(OTCMKTS:GBOOY), which has gained 47% over the past 10 months. One
international company with heavy Mexico exposure is Spanish bank
Banco Bilbao Vizcaya Argentaria
). Its shares have gained 38% during the young Pena Nieto era.