Advertisement
Features

Mexico dodges a bullet in Trump's trade war

Donald Trump’s decision to call off threatened duties on imports from Mexico closes the latest episode in his trade war reality show.

951_MW_P05_top_Mexico
AMLO: a rare penny-pincher in Latin America

Donald Trump's decision to call off threatened duties on imports from Mexico closes the latest episode in his trade war "reality show", says Gina Chon on Breakingviews. In return, America's southern neighbour has agreed to deploy its National Guard to reduce the number of migrants heading for the US. The country had little choice but to comply with US demands, says The Economist. A "whopping 80% of Mexico's exports" head north.

A reform story gone awry

Last year brought victory for left-wing populist Andrs Manuel Lpez Obrador known as AMLO in the country's own presidential election. Mexican equities have underperformed global benchmarks over the last five years.

Advertisement - Article continues below

AMLO has set about unpicking reforms of the country's education and energy sectors passed by predecessor Enrique Pea Nieto, whose business-friendly administration was tarnished by corruption scandals.

One of the new president's "first official acts" was to end construction of a "desperately needed new airport in Mexico City" that was already 30% complete, says Kenneth Rogoff for project-syndicate.org. Although he campaigned on a strong anti-corruption platform, AMLO's administration has "eschewed competitive bidding for more than 70% of the contracts it has awarded". Economic growth has also disappointed. Latin America's second-biggest economy shrank 0.2% in the first quarter of this year.

Still, AMLO differs from a typical Latin American populist in one crucial respect, say John Paul Rathbone and Jude Webber in the Financial Times. He has promised to balance the budget and cut public-sector salaries, including his own.

That has "kept international investors sweet" so far. For all the "unorthodox politics" and "surface turmoil", Mexico has relatively stable economic foundations, reckons Craig Mellow in Barron's. Inflation has plunged 3% in the past 18 months to 4.4.% and "all-but-inextricable links" to US industry bring a measure of reflected economic dynamism.

If the trade standoff between Beijing and Washington really is the new normal, then Mexico is the "obvious base" for US companies seeking a low-cost destination to relocate their factories, adds John Authers on Bloomberg.

On a cyclically adjusted price/earnings (p/e) ratio Cape of 19, Mexican stocks are reasonably priced compared with other markets. With the tariff resolution helping the peso bounce off five-month lows, "there must be a decent chance of a rebound now".

Advertisement
Advertisement

Recommended

Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Emerging markets: buy when the news is bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

Gold bugs' dreams are coming true – but we could still see a V-shaped recovery
Gold

Gold bugs' dreams are coming true – but we could still see a V-shaped recovery

John and Merryn talk about how it's perfectly reasonable to expect a V-shaped recovery and to continue holding gold as well. Plus, inflation, staycati…
30 Jul 2020
UK banks have had a shocking week – so it’s probably a good time to buy
UK stockmarkets

UK banks have had a shocking week – so it’s probably a good time to buy

Lloyds Bank reported a £676m loss this week. And, with all of the UK's high street banks having a terrible time of things, bank stocks are detested ri…
31 Jul 2020
The charts that matter: gold finally sets a new record high 
Global Economy

The charts that matter: gold finally sets a new record high 

As gold surges past its previous high, John Stepek looks at how it's affected the charts that matter most to the global economy.
1 Aug 2020