Everyone knows Mexico is amazing – even if you’ve never been there,chances are you’ve drooled over photos of the countless white sand beaches,ancient Mayan ruins and stunning natural beauty – but what about investing? The reality is that Mexico today provides investors worldwide with an unprecedented opportunity for growth and diversification,thanks to large part to sweeping reforms,an ideal geographical location and an increasingly educated workforce.
“Mexico is finally beginning to unlock its potential as an economic powerhouse,” writes Larry Flink of BlackRock according to a report by NASDAQ. “What sets Mexico apart from many other emerging economies is that it has the combination of some key factors for success: A diverse set of resources and industries,its proximity to the world’s largest economy,a relatively stable currency and – critically – a proactive,democratic government.”
The recent (and growing) list of reforms undoubtedly lies at the heart of the new opportunities in Mexico,including initiatives designed to encourage businesses to step into the formal economy,such as improving borrowing capabilities,modernizing the nation’s financial sector,reducing corruption and educating the workforce. But perhaps the most crucial reform involves opening up Mexico’s considerable energy sector to outside investment,which will allow access to vast untapped energy reserves.
“Over the next few decades,capital is going to flow more effectively into Mexico,the workforce will become better trained,and it will be easier and easier to do business,” according to Fink. “It’s the ideal environment for both entrepreneurs and established companies.”
Also of note,Mexico’s growing market for real-estate investment trusts (REITs) is making news,since Fibra Uno came to market in mid-June with a $2.5 billion offering,making it the 14th largest REIT in the world. The move prompted fund managers at firms like Fidelity and Blackrock to invest farther in the company,which accounts for nearly half of the $10 billion raised by Mexican REITs since they were introduced in 2011,and at least another three issuers are expected to come to market by the end of 2014.
“Thanks to the Fibra Uno offering,and a $541.4 million initial public offering earlier this month by the Mexican arm of industrial real estate firm Prologis Inc.,the first half of 2014 is shaping up to be a decent one for issuance on the Mexican Stock Exchange,” writes the Wall Street Journal. “Investment bankers say demand for Mexican assets remains strong,stoked both by liquidity abroad and a growing domestic pension system.”
Michael Hasenstab,fund manager for Franklin Templeton’s $70 billion Templeton Global Bond Fund,is also very interested in Mexico,naming it one of just four nations that are “poised to handle a pull back in U.S. monetary stimulus,” citing the nation’s “responsive” economy. Hasenstab says even if all money from foreign investments were to pull out completely,Mexico’s access to international reserves could more than cover the outflow.
Finally,Barron’s reports that MacKay Shields MainStay Unconstrained Bond Fund manager Dan Roberts is looking to Mexico for yield in a market delivering generally low returns. When asked about his outlook for emerging markets,Roberts says Mexico is attractive for a variety of reasons. First,it is a “rule of law” country versus a “rule of man” country,and he says Mexico also has a good balance of payments and low hard-currency debts outstanding,compared to its reserves.