Although Mexican stocks have experienced a serious upswing in 2012, thanks in large part to Mexico’s strong economy and low inflation rate,Barron’s reports that government bonds may offer investors an even better deal. In addition, the peso has remained steady for more than three years and government debt as a percentage of economic output is at less than half of what the U.S. is currently looking at.
“Mexico is enjoying a manufacturing boom in part because wage inflation in China has reduced its cost advantages for U.S. buyers,” writes Barron’s. “The economy [in Mexico] is expected to expand by nearly four percent this year, versus just over two percent in the U.S. and even less in Brazil.”
Also of note this September Moody’s announced that Mexico could be headed for an upgrade if incoming President Enrique Peña Nieto follows through on campaign promises to raise tax revenues and relax state control of the energy industry. The end result of all of this is that the MSCI Mexico stock index is up more than 20 percent so far this year, compared to a paltry 12 percent in the U.S. stock market.
Barron’s is particularly interested in Mexico’s government bonds, with five-year debt instruments recently yielding just over five percent, which is still outpacing inflation. Since inflation is showing no signs of rising, and in fact has been trending lower recently, investors can expect a realistic yield of at least .7 percent this year.
While that might not sound too impressive at first glance, keep in mind that comparable positive real yield bonds are tough to find these days anywhere in the world. In the United States, for example, five-year treasury bonds now yield less than their counterpart in Mexico.
The positive moves in Mexico’s market also reflect the growing popularity of Mexico real estate, and investors can now purchase Mexican government bonds directly from brokers in the US, such as Charles Schwab. According to Barron’s, they are an excellent addition to any well-diversified bond portfolio.