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Reforms & Stability Prompt Optimistic Investment Climate in Mexico

03 August, 2014

With heavy hitters Goldman Sachs, HSBC and Boston Consulting Group (BCG) all publically very sweet on the potential of Mexico’s future, the nation’s market is considered “highly desirable, relatively stable and economically attractive to investors,” reports Seeking Alpha.

The Impact of Reforms

Following the election of President Enrique Pena Nieto in 2012, Mexico has steadily enacted a growing series of reforms that open up the petroleum, telecom and financial banking sectors. In addition, the reforms have strengthened banking regulations, enhanced the ability to collect on debt and bring those who previously did not have a banking account into the system.

“Consequently, energy companies, and related support services such as attorneys and bankers, are rushing to Mexico,” writes Seeking Alpha. “Would an oil producer rather invest in Russia, and run the risk of Putin and international sanctions, Iraq (enough said), or in reforming Mexico?" 

The reforms and other changes in Mexico are already attracting big investment money, with a number of major international support organizations such as accountants, investment bankers and lawyers beginning to work closely with clients who are prepared to make long-term investments in infrastructure, as well as in mergers and acquisitions.

“A visitor can’t help but see signs of local optimism, as restaurants are being opened, retail vacancies are scarce in many areas, and new paint is clearly visible,” writes entrepreneur Anthony Ruben for Seeking Alpha after a recent trip to Mexico City.

Positive Future Outlook

Alberto Ramos of Goldman Sachs publicly announced his positive outlook for Mexico’s macro economic outlook for both the long term and immediate future, noting the nation’s “very well-managed economy,” and “very substantial structural reform.” In addition, BCG predicts that manufacturing alone will add up to $60 billion to Mexico’s economy by 2018, and HSBC says Mexico is poised to become the world’s eighth largest economy by 2050.

Ironically,Forbes reported that the tables are about to turn, with China likely to become Mexico’s second biggest export market by 2030, right behind the U.S. In fact, manufacturing in Mexico – particularly in the auto industry – is exploding, with Audi and Chrysler (among many others) investing billions in new facilities. Finally, this February Moody’s granted Mexico its first A3 bond rating, which indicates the nation’s strong capacity to meet financial commitments, and this March the country issued its first 100-year bond offering to the tune of about $107 billion.

A stronger U.S. economy is also great for Mexico, and exports to its northern neighbor rose by around 7.7 percent throughout July. Rising costs in China are also making it less competitive, while Mexico’s skilled workforce and prime geographical location have it poised for major growth. Inflation is low at less than 4 percent, while the peso has been quite stable.

How To Invest

Major Mexico firms American Movil, Cemex (CX) and Coca-Cola Femsa (KOF) are listed and average investors can easily buy shares. Many have also gained exposure to Mexico through Blackrock’s iShares MSCI Mexico Capped ETF (EWW).

“Over the past five years,EWW has grown by 74 percent, which is certainly respectable,” writes Seeking Alpha. “Earnings will grow and investors should be rewarded.”

Of course real estate and investment properties are always a great option as well, offering enormous returns if you work with knowledgeable professionals who know the best areas to buy.

Topics: Investment