In a recent article for the Wall Street Journal’s MarketWatch, Senior Portfolio Manager Audrey Kaplan writes about the benefits of adding Mexico to your international investment portfolio.
“Mexico has emerged as one of our favorite country picks, with Brazil trailing relatively close behind,” stated Kaplan. “[Mexico] offers a nice mix of strong economic growth and stable fiscal-debt environments indicative of many developing markets in the post-global-financial-crisis world.”
Kaplan manages the InterContinental Fund for Federated Investments, which expects Mexico’s annual real GDP to continue growing by more than 4 percent over the next few years, a number that easily exceeds the current trends. This is due in large part to Mexico’s booming export sector, which includes auto production that has grown from only 1.5 million units in 2009, to an impressive 2.5 million units in 2011, and is expected to grow again in 2012 by 13 to 15 percent.
“Given its competitive wages, attractive location to the world’s largest market, an open and free economy with no capital controls, and a free-floating exchange rate,NAFTA-member Mexico is also experiencing a flood of foreign investment, both from U.S. companies and European and Japanese manufacturers seeking to boost production efficiencies and take advantage of relatively low transport costs into the large U.S. and Canadian markets,” writes Kaplan. “Foreign direct investment is on pace to top $7 billion this year, exceeding the three previous years combined, with Audi,Nissan and Yokohama all having announced plans to build facilities and BMW potentially waiting in the wings.”
Finally,Kaplan predicts that strong earnings in Mexico, as well as top-line revenue growth, high margins and low funding costs justify the current prices of Mexico’s equity market. Specifically, the MarketWatch report mentions Mexico’s financial services conglomerate, Grupo Financiero Banorte, which has a strong loan growth outlook, attractive asset quality and a low nonperforming loan ratio, with a yield and price to earnings ratio that is very attractive compared to its peers.