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Investors Are Cashing In On Mexico

26 August, 2013

Mexico is proving it has what it takes to ensure long-term growth and is attracting record amounts of investment capital as discriminating investors begin to cash in on the nation’s sustainable economic future. To accommodate this growth,Mexico will spend close to one third of its GDP over the next six years on infrastructure improvements,which will in turn help to boost domestic demand and the nation’s overall potential for growth.

“Dedicated Mexico equity and bond funds saw combined inflows of $3.7 billion in the six months ending in June,” writes Reuters.

In addition,Mexico’s benchmark IPC stock index rose to the highest point in more than 20 months recently,growing by 2.5 percent in early August following the release of a new energy plan that was proposed by President Enrique Peña Nieto. The plan will reportedly increase the nation’s GDP,causing economic forecasts for growth in 2014 to hit 4 percent,compared with at least 2.8 percent this year,according to Bloomberg. According to analysts,even if Mexico’s economy only grows by 2.8 percent in 2013,it will still substantially outpace Brazil for the third year in a row.

“The prospect of tax and energy reforms in Mexico is prompting Nomura Holdings Inc. to predict the nation will become more creditworthy versus Brazil,” writes Bloomberg Businessweek. “Mexico won an upgrade from Fitch Ratings and is on review for a ratings boost by Standard & Poor’s as confidence builds.”

Since Mexico is already the 10th largest producer of oil in the world,the proposed energy reforms are likely to bring even more opportunities for growth. Peña Nieto’s plan reportedly includes profit sharing contracts for private sector companies to participate in oil production,as well as allowances for the private sector to build,own and operate oil refineries,storage and distribution centers in Mexico.

“It’s time for investors to start taking Mexico more seriously,” writes the Financial Mirror. “From the perspective of foreign traders and investors,now is the time to ride the bulls and take advantage of Mexico’s potential for economic and industrial growth.”

When it comes to Mexico and manufacturing,the city of Querétaro has seen a more than 120 percent increase in infrastructure project volume during the first half of 2013. In fact,the capital city of Santiago alone topped all other cities worldwide by having the largest percent change in foreign direct investment (FDI) at more than 233 percent. In Querétaro,corporations have found strong market access,an educated workforce and affordable Mexico real estate,which have rapidly increased investment and have attracted automotive,IT,telecom and aerospace industry leaders. 

Gross fixed investment was also up this year,rising 4.4 percent between January and May of 2013,according to INEGI. This includes expenditures on domestic or imported machinery and equipment,as well as activity in the construction sector. In addition,Reuters reports that Mexico is moving to double its annual crude oil exports to China in 2014 and also hopes to increase shipments that are bound for India.

The bottom line? Mexico is quickly becoming a favorite among savvy investors and fund managers,as inflation remains within target range and new opportunities open up for both funds and investment trusts.

 “In May,Mexico’s economy expanded at the highest rate for the last six months,” writes the Financial Mirror.  “Many countries have been persuaded to invest and set up factories in Mexico rather than Asia. By 2010 the country had already overtaken Britain as the eighth largest vehicle producer in the world.”

Considering all of this,it’s not really surprising that Mexico recently posted $23.85 billion in FDI during the first six months of 2013. This number marks the most ever received by Mexico in this length of time and is more than double the amount that was initially reported for the first half of 2012.

Finally,consumer confidence in Mexico has risen sharply in 2013,jumping to 98.0 with improvement across the board and all indexes showing dramatic improvement. 

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