Reuters reported on the increased optimism in Mexico since the election of Enrique Pena Nieto last month, fueled largely by the markets reacting to the anticipated pace of reforms. The result? Potentially great news for Mexico’s capital market activity and for lower-grade borrowers who may find increased opportunities in the dollar markets.
“There is still substantial relative value in Mexico”, writes Reuters. “As markets bet on an end to the stalemate over reforms.”
Many analysts were surprised by the rally surrounding rates following the elections, with Bank of America Merrill Lynch analysts chalking it up to an increase in investment flows and reduced yields on U.S. Treasuries, along with ongoing concerns over the global economy and the growing European debt crisis.
This June, the percentage of foreign investors holding Mexican fixed-rate securities increased from 44.5 percent to 47.5 percent, largely due to inflows of more than $3.5 billion.
“In the next decade, Mexico is likely to become LatAm’s largest economy and one of the most dynamic among emerging markets”, stated Nomura analyst Benito Berber.
According to Reuters, Berber attributes this growth in part to the new president’s promises to support a variety of pro-market reforms, harnessing the largely dormant potential of the country’s banking system, which is small compared to much of the world, and to the favorable demographics of Mexico real estate.
“Even if reforms do not take place, the growth rate should be between 3.5 percent and 4 percent per year, ” stated one analyst according to Reuters. “The Mexican economy is poised for a much healthier pace of growth, even if the new president fails to push through reforms.”
Reuters also reported that the manufacturing, consumer market and industrials sectors are all expected to benefit from the growing Mexican GDP, which will make these areas more attractive for issuing local debt.