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Fitch Upgrades Economic Rating,FDI Expected to Surge

02 June, 2013

Fitch Ratings upgraded Mexico’s credit rating from BBB to BBB+ this May,following news that proposed economic reforms would boost growth in Latin America’s second largest economy. This move is expected to help further reduce Mexico’s already low borrowing costs and has helped to boost the peso.

“Fitch noted Mexico’s economic resilience despite a sluggish economy in the U.S.,Mexico’s key trading partner,with three-year growth averaging 4.5 percent in 2012,” writes the Wall Street Journal. “The agency also praised Mexico’s prudent macro-economic policy,which underpins the country’s low inflation.”

The upgrade from Fitch comes on the heels of  a similar boost from Standard & Poor’s,which changed Mexico’s outlook from stable to positive in March following reform momentum.

Fitch Senior Ratings Analyst Shelly Shetty told MSN Money that the reform momentum has “surpassed expectations” helping to “enhance confidence in Mexico as well as investment and growth dynamics in the medium term.” In addition,Mexico has reportedly been attracting large inflows of capital throughout 2013,a trend that is expected to increase as President Enrique Peña Nieto pushes through additional changes to Mexico’s tax system and opens up the state-run energy sector to attract additional foreign investment dollars.

“Mexico has absorbed $160 billion in new foreign investment in its financial markets in the last three years,pushing stocks and bonds to record highs,” writes MSN Money. “Foreign holdings of Mexican peso debt have surged six-fold since 2008 to $133 billion,nearly 40 percent of the total on issue.”

In addition,Bloomberg reports that the proposed legislative reforms could push Mexico’s annual growth to 6.5 percent and beyond,while the inflation rate is expected to drop down,hovering between two and four percent.

The recent ratings upgrade also caused Mexico exchange traded funds (ETFs) to garner additional attention from international investors,with the iShares MSCI Mexico Capped Investable Market Index Fund (NYSE: EWW) nearly tripling its assets under management from around $1.4 billion on November 15,2012,to more than $3.16 billion as of May 8,2013.

Finally,the nation’s Economy Ministry told the Wall Street Journal that it expects foreign direct investment in Mexico real estate to surge throughout the remainder of 2013 and beyond,thanks to the growing number of multinational companies that are coming here to take advantage of Mexico’s excellent trade and tax conditions. With eight major global automakers building new plants in Mexico,Home Depot opening its 101st store with six more under construction and Mexico’s telecom industry increasing the total number of mobile customers by nearly 6.5 percent in the first quarter,there are always plenty of reasons to get excited about investing in Mexico.