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"No Stopping the Mexican Investment Boom"

13 September, 2012

Last week in an in-depth article about Mexico,Bloomberg reported that in spite of the worldwide recession,investment in Mexico is steaming full speed ahead. For the first time since 2002,Mexico's stock,bonds and currency are beating both the US and Brazil,with its dollar debt returning 16% versus 14% for Brazil bonds and 8.8% for US Treasuries,according to Bank of America Corp and JP Morgan Chase. With its peso gaining speed to be up 4.5% against the dollar this year,its IPC stock index is also up 5.3% compared to the 2.8% increase for the S&P 500. 

In effect since 1994,NAFTA continues to lure investors,with Mexico's share of US exports rising in the first 7 months of the year while China's exports fell. Guillermo Osses,who oversees $50 billion in emerging market assets at Pacific Investment Management Co,the world's biggest bond fund manager,said that "the reality is that you will continue to see companies making long-term investments". "We still have significant exposure in Mexico." Mexico's,Latin America's second largest economy after Brazil,gross domestic product grew 7.6% during the 2nd quarter this year,which is the most it has grown in a single quarter since 1998. 

In the previous 12 months,investors have poured $2 billion into Mexican equities,according to EPFR Global. Head economist for Citigroup Inc's Banamex unit in Mexico City,Sergio Luna,said that "the advantage that Mexico has as a partner with the US in NAFTA has been growing". Bloomberg strategists anticipate that the S&P 500 will gain to only 4.3% by the end of this year,while the IPC index is expected to climb to 6.5% in comparison,according to Bank of America forecasts on Sept. 16. Stefan Hofer,an emerging-markets equity strategist at Zurich's Bank Julius Baer & Co,which oversees $160 billion worldwide,said "while the security situation is an important issue to watch,international investors have not been dissuaded from investing in Mexico." 

According to the International Monetary Fund,Mexico will claim the biggest rebound among the world's largest nations after Russia,as its economy expands 4.5% this year. Benefitting from lower shipping costs,Mexico's exports have gained market share from China during this global financial crisis. 

"Mexico is a competitive destination for manufacturers and corporations," said Luis De la Calle,a former Mexican negotiator for NAFTA. In the first seven months of this year,Mexico's share of US exports has risen to 12% while China's have failen to 18%. Volkswagen AG,Europe's largest carmaker has invested quite heavily in Mexico,and is planning to start construction this year on another plant in Silao,Mexico with a capacity for 330,000 engines annually. The world's largest snack-food maker,PepsiCo Inc.,has been investing in Mexico for over 80 years and recently took out a full page ad in Monterrey's El Norte newspaper saying "We're proud of our roots with 81 years in Monterrey." "We're here today,and we'll be here tomorrow."

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