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Investing in the 'Mexican Opportunity'

11 January, 2015

“How big is the Mexican opportunity?”

This is the question asked in a recent article by Citywire,one of the UK’s most respected news agencies for professional fund buyers working in the global asset management industry. The article asked a group of analysts to talk about what’s going on in Mexico right now,and as it turns out,their answers might just surprise you. 

“There is a lot of optimism from investors over the effects of potential reforms on longer-term GDP growth,” shared Fiona Manning,a senior investment manager on the global emerging market equities team at Aberdeen. “As we see further government reform both fiscally and other measures,the formal process will drive further GDP growth and we’ll see a much stronger domestic economy.”

On Oil

With Mexico’s first oil field auctions in more than 75 years set to take place during the first half of 2015 and details surrounding the bidding process on the first auction for drilling in shallow waters released just last week,it’s just a matter of time before Mexico – and those savvy enough to invest early – will begin reaping the benefits of this historic development. 

“The top-down story in Mexico is attractive,” stated BlackRock GF Latin American fund manager Will Landers. “Reforms [opening the country’s oil fields to private contracts for the first time since 1938] have been passed,so have the secondary laws that set the parameters.”

On Stocks

Domestic recovery is steady and equity valuations in Mexico are among the highest in the world’s most dynamic emerging markets. And there are a number of stocks that have directly benefited from the reform process,including consumer names and financials,where Aberdeen analysts have said they expect to see the greatest long term growth opportunities.

“Stock picking in Mexico is as critical as ever,” Landers shared. “We see opportunities in the energy and export/industrials sectors,given there will be greater competitiveness in the export market from eventual lower energy costs.”

On Bonds

In March of 2014 Mexico sold its first 100-year bond in sterling,following an earlier century bond in dollars issued in 2011. Investors looking for high-yield offerings were attracted to the opportunity,especially after Moody’s upgraded Mexico’s credit rating to A3 and gave the nation a ‘stable’ outlook. 

“[We] recently invested in the Mexican 100-year bond in its Strategic Bond fund,” shared Bryn Jones,a fixed income manager at Rathbones. “It’s got an attractive yield. We like Mexico because we believe a turnaround in the U.S. economy is in the offing.”

On Trade

Low inflation in the U.S. has been driven in part by lower commodity prices,since most of its growth is dependent on the consumer,presenting a considerable benefit. As one of the biggest trading partners with the U.S.,Mexico is – economically and geographically - in a very attractive position.

“From a production perspective,because of the cheaper cost of labour,it also stands to benefit,” stated Jones. “That’s why we like it. [Mexico also has] a stable political system.

The bottom line? As Citywire writers sum it up,Latin America’s second largest economy is continuously presenting investors with more opportunities as its economy grows in size and strength.

Contact us today to learn more about creative ways to invest in Mexico’s growing prosperity!

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