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Adios NAFTA? Financial Advisors' Daily Digest

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By SA For FAs :

I've been to Mexico three times, but each one of those visits was to Baja California, a short distance from my native Alta California. That is until today, when Rob Marstrand's latest article introduced his readers to the pleasantness of Polanco, an affluent neighborhood of Mexico City, followed by a taco lunch in Roma Norte. If you're going to be putting in the time learning about investing, being guided by a talented writer makes the journey the more enjoyable, as I have previously noted .

After "lunch," Marstrand looked into Mexican stocks, which he discourages for two reasons. First, for a host of financial reasons - including a calculation based on dollar returns of peso-denominated assets, after inflation - he does not expect sufficient reward to risk his capital. Second, he warns the political landscape makes investing in Mexico riskier still. I'll let him explain:

A lot of people - rightly or wrongly - are worried that Mexican politics could be getting closer to those of Venezuela, a failed state with hyperinflation.The Morena party and allies look likely to replace the deeply unpopular current government, under President Enrique Peña Nieto. That is, if it's a fair election.

Read the article in its entirety for quality investment analysis and a deeper understanding of America's important neighbor. For my part, I wanted to add a third reason why Mexico doesn't currently look like a promising investment, and I invite you to tell me if I'm being paranoid. Apart from the numbers and domestic political risk that Marstrand relates, with which I agree, I am concerned that the U.S. will deliver some sort of shock - in the form of an evisceration of NAFTA - that will depress Mexico's economy and the near-term fortunes of its largest companies.

The volume of trade among the U.S., Canada and Mexico has reached over a trillion dollars thanks to NAFTA, a quadrupling from pre-NAFTA times, and while some argue that the agreement destroyed U.S. jobs, I regard as more persuasive studies that show the trade bloc actually shielded U.S. manufacturing jobs that would otherwise have been lost to China.

Regardless, the climate on trade has shifted and the recent imposition of tariffs on steel imports shows that protectionism is now official, current and even popular. I'm not saying that the administration will altogether nullify NAFTA, but what does seem likely to me is some devaluation of the agreement, some penalty that is sufficient to describe as getting Mexico to pay for a border wall. That makes Mexican stocks look quite shaky to me in the near term.

Please share your thoughts on this issue in our comments section. Meanwhile, below please find links to other advisor-related content on today's Seeking Alpha.

  • Charlie Bilello: What real returns should bond investors expect?
  • David Merkel, CFA suggests bonds as an alternative to low-expected-returning stocks.
  • Jim Sloan: Where do REITs belong in your asset allocation?
  • Jack Waymire: How important is blogging for financial advisors' marketing?
  • Merk Research has a video presentation (11:00) on the current state of the business cycle .

For more content geared to FAs, visit the Financial Advisor Center .

See also Archer Daniels Midland: Interesting DGI Play on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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