A recent article by leading UK financial magazine MoneyWeek discusses the benefits of investing in Mexico as a way to profit from the current economic slowdown in China. Out of the four emerging markets that Goldman Sachs recently named for offering the hottest new investment opportunities – Mexico,Indonesia,South Korea and Turkey,or MIST – MoneyWeek says Mexico is the number one choice.
Here’s how it works: China has been the workshop of the world since the 1970s when it began using its large population to provide cheap labor,producing low-cost products for many of the world’s largest markets. However,wages in China have started to rise,reducing its cost advantage,which has made Mexico real estate much more appealing as a manufacturing location.
According to MoneyWeek,wages in Mexico today are only 10 percent higher than they are in China,but for Europe,the US and Canada,Mexico’s geographical location is much more economical,because it reduces transport costs. Also,the Mexican government is much easier to work with,since it is a market-based democracy instead of a communist regime. With all of these things taken into account,wages in Mexico are actually much lower than those in China.
In addition,the country’s GDP grew by 5.5 percent in 2010 and 3.9 percent in 2011,substantially outpacing Brazil,which grew by a scant 2.7 percent in 2011. Also,Mexico’s public and private debt looks very good and this is one of the things that investors look at closely when investing in emerging terrains,as it can play a large role in the level of risk involved.
“Mexico’s finances are in good shape,” writes MoneyWeek. “Net government debt is only 35 percent of the GDP and private debt is low.”
Finally,Mexico’s government has substantially limited and worked to reduce the total amount of debt that it issues in other countries. Although this means Mexico has to pay a higher interest rate on government bonds,it has also proven to place the country in a strong position when foreign economies experience trouble. Mexico’s strong position despite the recent economic downturn is proof enough that this strategy is effective.