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Why Investors Love Mexico

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This article was written by Kenneth Rapoza for Forbes; we liked the article and thought you might find it interesting as well. Here we are publishing just an excerpt, but you can read the article in full length here.

Mexican flags

For many investment firms, Mexico has become a number one overweight in their global portfolios.  And it has paid off.  As measured by the broad iShares MSCI Mexico (EWW) exchange traded fund year-to-date, large cap Mexican equities have risen 17.5 percent, beating the MSCI Emerging Markets index’s rise of 2.29 percent and the S&P 500′s rise of 9.49 percent.  The economy has been doing well, though that was partially because of the U.S. in the first half of the year.  The next two quarters are expected to be much worse for the U.S., and so Mexico will feel some drag on its economy because of it.   Newly elected politicians from PRI are more pro-growth than they have been in the past, singing the praises of the private sector.  And wage growth in Mexico is flat, while it is rising in China.  The population is young, so Mexico has a demographics edge that China does not have.  Or Russia for that matter.  Earlier this month, Nomura Securities even forecast that Mexico would overtake Brazil as the largest economy in Latin America.

Mexico is currently the 12th largest economy in the world.  Brazil is around No. 6.  Mexico’s GDP last year was $1.65 trillion, up from $1.59 trillion in 2010 and $1.51 trillion in 2009.  By comparison, Brazil’s GDP in 2011 was $2.2 trillion.

Mexico is not some flavor-of-the-month economy. It might be some flavor of the month in different years, but overall this is a very important economy and will continue to be so, even more so than it ever has been,” says Heiner Skaliks, portfolio manager at the Strategic Latin America fund (SLATX) based out of La Paz, Bolivia. The fund has 40 percent of its fund in Mexican equities or dollar denominated bonds. “A lot of people were waiting for the elections to be over.  Now we know the PRI is in.  They want private sector investment.  They want to be a global player from an economic perspective.  The questions about the election are behind us and now you can do the very difficult work of putting the policies in place to help position Mexico in the emerging markets,” says Skaliks.

As Mexico strengthens so will its currency, still trading around 12 pesos to the dollar. It will be a Catch-22 for Mexico: good for importing capital goods; bad for exporters.  A stronger peso will also help some big Mexican corporations that are now shopping abroad for acquisitions and joint ventures.

“One of the things we like about Mexico is that you can get big, liquid names that have a significant portion of their revenue stream from other parts of the world.  Coca Cola’s subsidiary is listed in Mexico and 60 percent of their revenues come from South America.  A lot of the companies are multinational in nature,” says Skaliks.

Good news about the country is a good news for the travel industry.

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