Play catch-up with Mexico
Often considered NAFTA’s weakest link, the emerging market is coming on strong
David Pett, Financial Post Published: Saturday, April 10, 2010
April is turning into another impressive month for North America’s hottest market … Mexico.
On Monday, the Mexican Bolsa index, the country’s top equity benchmark, hit a new high, only to soar even higher yesterday. The Mexican peso, meanwhile, reached its highest level since early October 2008 yesterday and remains the top-performing currency among emerging markets this year.
But that’s not all. The month started with Citigroup Inc., saying the country’s bonds are eligible to be included in its world government bond index, making it the first Latin American country in the closely watched index.
Not even Canada and its parity-busting loonie can top that kind of economic momentum. With the U.S. recovery only now starting to find its groove, there seems little doubt among analysts that Mexico will continue to move in the right direction, despite the violence that regularly grabs international headlines.
"Mexico has become an interesting place again for investors and we are confident there is more money to be made in this market," said Claudia Medina, a senior analyst with Banco Itau S.A., an asset management firm based in Sao Paulo, Brazil.
Last year at this time, investor sentiment toward Mexico could not have been more different.
Like most other countries around the world, its economic growth suffered greatly from the collapse in trade and the global financial crisis, falling 6.4% in 2009. However, Mexico’s economic troubles also lasted much longer than its Latin American peers. While Brazil’s economy was bottoming in the second quarter of last year, Mexico’s huge dependence on a still-fragile U.S. consumer, an escalating drug war and the swine flu outbreak continued to weigh heavily.
Then in the latter half of 2009, Both Standard & Poor’s and Fitch Ratings downgraded their credit ratings for Mexico’s foreign currency debt following congressional elections that failed to produce meaningful fiscal reform.
"The year 2009 seemed to confirm all the fears put forward by the bearish camp," said Pierre Fournier, a geopolticial strategist at National Bank.
Today, Mexico’s economy is expected to grow roughly 4% in 2010, representing a trough-to-peak increase of 10% in just one year. The only other country expected to grow that quickly is Turkey.
Nick Chamie, global head of emerging markets research at RBC Capital Markets in Toronto, said the problems that slowed the recovery last year have largely come to pass, leaving Mexico free to play an effective game of catch-up through the first quarter of this year.
"The economy has certainly rebounded nicely following last year’s disastrous results," Mr. Chamie said.
The strong recovery is being led primarily by Mexico’s manufacturing sector as it benefits from the improving U.S. economy.
The U.S. market represents 80% of Mexico’s total exports, which accounts for 27% of the country’s gross domestic product.
As a large exporter of oil and home to a burgeoning mining industry, Mexico has also gained from the increase in commodity prices over the past six months to a year.
Another advantage is the country’s strong fiscal situation. Despite the political noise about fiscal reform late last year, Mexico’s government debt-to-GDP ratio hovers in a very acceptable range of 35% to 40%.
"That leaves it in very good stead in comparison to almost any other major economy," Mr Chamie said.
With a good chance that Mexican markets will pull back following such a strong run in a very short period of time, Mr. Chamie is predicting a more modest pace in gains over the next year. Over the next few months, he believes Mexico will remain attractive assuming growth remains positive and economic fundamentals continue to shine through.
Specifically, he sees good value in the country’s fixed-income market and recommends investors take an overweight position in Mexican bonds.
The peso, which remains almost 25% below its 2008 high, also looks relatively cheap compared with its Latin American peers, he said.
How markets in Mexico will perform six months to a year from now will depend largely on U.S. growth and the trajectory of commodity prices, Mr. Chamie said.
Less of a concern is the country’s protracted drug wars, which have destabilized the northern region of the country.
"To the extent that everyone is aware of the drug wars it is already priced into markets and is not a huge barrier to investing," he said.
As for the country’s stock market, Vincent Delisle, a strategist at Scotia Capital Markets, said there also appears to be more upside in store. He told clients this week that corporate earnings in Mexico will jump 23% in 2010 and 16% in 2011.
By comparison, he forecasted Canadian earnings to rise 29% for 2010 and 10% the following year.
Already up more than 90% since the March lows last year, Mr. Delisle has a Bolsa target of 36,250, a 7% increase from yesterday’s closing price of 33,840.85.
Reiterating a North American preference in his asset allocation, the strategist recommended U.S. stocks over Europe, Canada over Australia and Mexico over Brazil.
Ms. Medina’s firm, which manages the Excel Latin American Fund in Canada, is currently 5% overweight Mexican stocks, favouring the industrials and materials sector over consumer and telecommunications stocks.
"We continue to believe that growth in the Mexican economy will come more from manufacturing exports than from domestic consumption, and hence our strong position in industrial companies with high exposure to the United States and Brazil," she said.
Her top picks include steel company, Ternium S.A., a major supplier to the U.S. automotive industry with operations in Mexico and Argentina, and Alfa S.A. B de C.V., an industrial conglomerate that produces high-tech aluminum auto parts.
The firm boasts significant holdings in petrochemical company Mexichem S.A. B de C.V., and Grupo Mexico S.A. B de C.V., the country’s largest mining company.
Investors can buy ADRs of Ternium and Mexichem in New York. Or, for broader exposure to the Mexican market, iShares offers the MSCI Mexico Investable Market ETF, priced in U.S. dollars.
Alternatively, there are several Latin American ETFs and mutual funds.
With new consumption taxes taking hold in January, Ms. Medina said Mexico’s beleaguered consumer will remain stressed over the short term, but she believes that, eventually, success in the manufacturing sector will lead to better domestic consumption.
While Mexico surely faces serious challenges ahead, including an economy too dependent on the U.S. consumer and a political environment that has been dogged by ineffective government and corruption too often in the past, Mr. Fournier said those risks, on balance, are outweighed by Mexico’s positive long-term fundamentals.
With an increasingly competitive manufacturing sector, a strong resource base and superior corporate growth prospects, he expects Mexican stocks to outperform U.S. indexes over the long term.
"Sentiment about Mexico is clearly and finally beginning to turn," he said.
In the latest TRAVEL AND LEISURE readers poll San Miguel was rated the number one city in Mexico and Latin America and number four in the WORLD. See link below
http://www.travelandleisure.com/worldsbest/2010/cities
In an earilier blog, I wrote how I love San Miguel more every year. It is true. Being number four in the world…well…where would I go from here?
TE AMO SAN MIGUEL
Yesterday I went to the last class of Rocio’s Level 2 Conversation/intermediate Conversation.
I was able to sit and talk to the class for a few minutes and they expressed their feelings about their progress with Spanish and there frustrations. These students have just come from Level 2, Preterite and Pronouns. This class focuses on the use of the simple past tense. Students tell each other what the did yesterday? and do a lot of activities where they read, write, and talk about what they did. All this is done only in Spanish of course with Rocio’s energetic guidance and with Antonieta as her assistant.
This is what people told me. They are frustrated that they cannot understand and speak better. The felt that they had improved their ability to talk about past events but native speakers still sounded like a jumble. They all agreed that the greatest improvement was in their reading and pronunciation. Being asked to read their stories a loud and discussing them helped them to gain more confidence in their speech. Some felt frustrated and others quite pleased. What we discovered is that adult learners seem to learn to read and write first, then reading a loud helps to connect the brain with the mouth and they begin to grasp concepts instead of individual words. This is the purpose of this class and it is working. Here is a testimonial from on of the students.
“I took the class from Rocio and she was far and away the best instructor I’ve ever had. The class was fast and fun and I learned a great deal. The combination of solid instruction, class interaction, reading and writing meant that the concepts were strongly imprinted on my aging brain! I intend to take it again in the fall.”
Carolyn Patten
I had to remind the class that they have only taken three Spanish classes, Level 1, Level 2 and now Level 2 conversation. Rome wasn’t built in a day. Poco a poco.
Tuli and I came to San Miguel de Allende on our honeymoon in 1990 completely by accident. We were married in Dana Point in May and had been travelling down the Pacific Coast. Now it was September and we were in Puerto Vallarta. One evening at a gallery opening we met Dan Reuffert, an artist from San Miguel. We hit it off and he suggested we visit San Miguel if we really wanted to see the best place in Mexico. We couldn’t imagine anything being wonderful if it wasn’t on the beach!
Anyway, a couple of days later we drove over,,, Sept. 11, 1990,,, We arrived late and slept in our van on the Mirador overlooking the city. We awoke and saw the city below and the expanse of the lake and the mountains to the east. It was beautiful. We excitedly drove down the hill and parked near the Jardin. I remember the air was crisp and clear like in Santa Fe. We arrived at the Jardin and sat down in front of the Parroquia. Silence. Then, how awesome. Then, we gotta live here. We got an apartment that day. The rest is history. It has been a wonderful ride.
We have seen lots of changes in this city. People ask me all the time if I like San Miguel as much today as I did back in the day. I enthusiastically say yes. Over the years San Miguel has improved. The city is cleaner, better managed. The relationship with the two communities has improved. The foreign community continues to provide services to those challenged in our community. There is very little poverty.
Since becoming a World heritage City, entire neighborhoods have been refurbished. Our sewage system and other services have improved. Our security forces have grown and are better trained. Life is much more comfortable and we feel safe and connected with the world.
The thing I have enjoy most is how the menu of foods and entertainment have improved and skyrocketed into the cosmos. Tulis first business in San Miguel was Tuli’s Dulces. Non of the restaurants had any good deserts. She imported her products and made cookies, chocolate covered peanut butter balls and other sweets. She was the only game in town. That is hard to believe when you look at the variety of pastries, breads, and sweets available in San Miguel today. Our restaurants have improved every year bringing on a foodies wonderland.
Tuli is a masseuse. When we first came here she was the only masseuse in San Miguel. Now look at all the healers, spas and the Life Path center in San Miguel. This has become a Mecca for healing and for healers from all over the world.
Plays, writers, music, festivals, filmmaking, theatre, education, food, art and entertainment abound at the highest levels. It is better than ever before and seems to get better every day.
And what surprises me most is that the same cool people keep showing up here, from the same tribe, and we keep making friends with more and more interesting people. Life is rich 
here. I love San Miguel MORE THAN EVER.
THE SOAP OPERA DE CAROLINA…..LAST CLASS….LOS FINALES
Do these look like Thespians having fun? It was hilarious.. Atonieta is a taskmaster director. 
Each student takes a role in the play and reads their parts out loud. Students say that when they are forced to read out loud and with emotion; they overcome their inhibitions and they greatly improve their comprehension and pronunciation. They think in Spanish. Lots of fun. Just ask Rodney, Robert, Flora, Lilly, Clay, Beth Ann, and Antonieta. How is it that Rodney was Caroina?????
Warren Hardy Spanish is excited about our new "Storytelling" course.
This is a transitional course from Level 2 before moving into Level 3.
This is a great course for comprehension and conversation as it is taught mostly in Spanish by Rocio Ruiz, one of our WHS teachers. The first part of the course has a grammar component that teaches the Imperfect tense and reviews the Preterite tense. Students learn to combine the Preterite and the Imperfect. Then we converse using the Preterit and Imperfect correctly and with confidence by writing and telling stories about our lives, travels and adventures.
We are offering this course for the rest of this year at a discounted cost of $150US. Materials needed are the VerbCards and Level 3 Workbook. Class size is limited to 8 students.
Enroll now for the July 19-August 4 course.
Call Tuli at 154 4017 (9-12noon) or 152 4728 afternoons and weekends.
I want to offer a personal testimonial for the Warren Hardy storytelling course, which I took with my husband, Cedric, a few weeks ago. We had finished Level II of the Warren Hardy program and currently use functional Spanish to meet many of our (simple) daily needs. In our case, the class was very good for several reasons: (1) the teacher spoke primarily in Spanish and had class members ask questions/comment in Spanish. (You are encouraged to converse in English to clarify more difficult concepts); (2) you have the opportunity to write personal narratives (e.g., aspects of your life story, an important vacation) in Spanish, which gives you the opportunity to use other important linguistic channels (reading, writing) that enhance second language learning; (3) you learn to distinguish the preterite and imperfect past tenses and moreover, practice using these tenses in the storytelling written exercises; (4) you also have opportunities to use the preterite and imperfect past tenses during exercises where you share your stories orally with other class members; and (5) you practice, in Warren Hardy style, using the tenses while generating sentences with a partner (this will be familiar to those who have taken other classes from Warren). The teacher, Rocio, is EXCELLENT. She is enthusiastic, focused, encouraging, clear in explaining concepts, supportive, and she made the class fun. She is one of these people who was born to teach. You will leave each class inspired and encouraged. Finally, I want to say that I made a significant leap in understanding conversational Spanish through taking this class. I’m not sure why, but it worked for me and I’m very grateful to have had the opportunity to take the class. I hope this helps others in trying to decide whether or not to take the class. If you’re on the fence, take it! You can’t go wrong!
another good testimonial:
Absolutely agree with the other two comments. I took the class from Roscio and she was far and away the best instructor I’ve ever had. The class was fast and fun and I learned a great deal. The combination of solid instruction, class interaction, reading and writing meant that the concepts were strongly imprinted on my aging brain! I intend to take it again in the fall.
Carolyn Patten
MEXICO CITY — Campaign offices had been bombed, candidates had been threatened and killed, and dead bodies were even hung from bridges on the morning of the polling.
Workers counted votes during local elections in Ciudad Victoria in Mexico on Sunday.
A federal police officer stood guard on Sunday outside a polling station in Durango, in northern Mexico. Many defied drug violence to cast a ballot.
But Mexico’s voters still turned out in relatively large numbers to choose new governors, mayors and state representatives over the weekend and managed to send an inspiring message amid all the violence: Mexico’s democracy, flawed as it may be, endures.
One of the nation’s most powerful factions — the country’s drug lords — had attempted to hijack the process. Through bloodshed, they managed to keep voter turnout down in some states and scare off many poll workers, prompting one former president of the Federal Election Institute, Luis Carlos Ugalde, to lament that this was the first Mexican election in which drug dealers played a visible role in interrupting the process.
But the polling went on and the results were accepted, with voters appearing to steer away from candidates with perceived links to traffickers. In the border state of Tamaulipas, the populace seemed particularly intent on declaring that drug lords should not decide elections, voting in the brother of a candidate who was murdered less than a week before Election Day.
Political analysts had predicted a huge victory for the opposition Institutional Revolutionary Party, known as the P.R.I., which ruled Mexico for 71 years before voters broke its grip on the country’s politics a decade ago. And the P.R.I. did take 9 of the 12 governorships that were up for grabs on Sunday, including in Tamaulipas.
But the clearest messages that voters seemed to send were that no one party rules Mexico anymore and that entrenched party machines no longer have a lock on power. Voters were clearly frustrated with the violence Mexico has experienced, interviews showed, and the fact that they turned out at all in some particularly dangerous areas was noteworthy.
“I’m voting with hope, but also fear,” said Christian Licona, an unemployed high school graduate voting for the first time in Ciudad Victoria, the capital of Tamaulipas. His brother, though, decided it was too risky and stayed home, even though soldiers guarded many polling places to keep the drug traffickers from interfering any more than they already had.
The P.R.I. — a party that represented autocratic rule and is attempting to remake itself as an efficient pragmatic one — hung onto six states and gained three more from the National Action Party, known as P.A.N., of President Felipe Calderón, and the left-of-center Democratic Revolutionary Party, or P.R.D.
Zacatecas, which had been in the left’s column for 12 years, is now a P.R.I. state. So is Aguascalientes, which had a dozen years of rule under Mr. Calderón’s party, and Tlaxcala, which the P.A.N. and P.R.D. have traded back and forth since 1998.
But the P.R.I. was also handed its hat in the states of Oaxaca, Puebla and Sinaloa, where its rule has been as sure a thing as the market opening for business and the tortilla makers opening their stands.
Some considered the results a stalemate. “The results don’t display a victory or a strengthening in positions,” a Mexican political analyst, Fernando Dworak, told Reuters. “We are being reserved on the outlook for 2012, as many things could still come into play.”
But others saw the process as the victor. “Perhaps the greatest takeaway from Sunday’s elections is that democracy is surprisingly healthy in Mexico,” said Andrew Selee, director of the Mexico Institute at the Woodrow Wilson Center in Washington.
It took an unusual coalition of P.A.N. and P.R.D. candidates, ideological opposites if ever there were any, to knock the P.R.I. off its pedestal. The two parties fought an electoral battle for the presidency in 2006 that was so vicious that both still claim to have rightly won.
It is unlikely, analysts say, that they will join forces to field a single candidate in the run-up to 2012, when the P.R.I. will attempt to move back into Los Pinos, the Mexican White House.
Each state in this election had a different dynamic, Mr. Selee noted, with voters in Oaxaca and Puebla appearing to rebel against P.R.I. governors who were considered corrupt and authoritarian. In Sinaloa, the cradle of Mexican drug dealing, the people withheld their support for a candidate perceived to have links to organized crime, he said.
“Mexico remains an imperfect democracy, like all, but there do appear to be some mechanisms of accountability at work that allowed these elections to be meaningful referenda on local political performance,” Mr. Selee said.
Given how deeply drug traffickers infiltrate many of Mexico’s institutions, it is not unlikely that a candidate was probably elected somewhere in the country on Sunday who has links to them. It might have been a small-town mayor or a local representative. If it was a governor, it would not have been the first time.
Still, analysts said, that corrupt leader is now more likely to know that the people are watching.
David Agren contributed reporting from Ciudad Victoria, Mexico.