Mexican stockmarkets lose their spice
Mexico's economy is in poor shape – its GDP shrank by 8.3% last year and the recovery has been bumpy. And despite a 13% rise in value this year, investors are deserting its stockmarket.
Mexico’s president Andrés Manuel López Obrador (“AMLO”) is halfway through his six-year term, says Nathaniel Parish Flannery in Forbes. The economy is in poor shape. GDP shrank by 8.3% last year and the recovery has been bumpy, with the economy contracting by 0.4% in the third quarter. Resilient exports have bolstered growth (more than three-quarters of Mexican exports go to the US). Yet business leaders are increasingly opting to build new factories in India or southeast Asia rather than right on America’s doorstep.
Yet US-China tensions and the post-pandemic push to simplify supply chains present Mexico with a “golden opportunity”, says The Economist. The country’s manufacturing wages are lower than China’s. Mexico has clusters of excellence in sectors such as cars and aerospace. Parts of the north enjoy growth rates comparable to Asia. Yet foreign direct investment lags competitors such as Brazil. AMLO has scared away investors by tearing up contracts and protecting inefficient state-owned energy firms.
AMLO’s popularity rests on the perception that he is not involved in the graft that blights so much of Mexican life, says Christine Murray in the Financial Times. “Transparency International ranks Mexico in 124th place of 180 countries.” But the president’s obsession with penny-pinching has deprived anti-corruption prosecutors of the resources they need. Worse, some suspect that corruption is being used as a way to clamp down on government critics, while allies get off with a slap on the wrist.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A shrinking stockmarket
The central bank is next in AMLO’s sights. A debt crisis prompted Mexico to make the central bank independent in 1994, say Anthony Harrup and Santiago Pérez in The Wall Street Journal. Since then, the Bank of Mexico has built a reputation as a guardian of macroeconomic stability. It has hiked interest rates four times since June in an effort to get inflation – currently more than 6% – under control. Yet AMLO has upset investors by picking a little-known deputy finance minister with no monetary policy experience as the next bank governor. The appointment is typical of an administration that runs on connections rather than merit.
The benchmark IPC index has gained 13% so far this year, better than the emerging-market average. Yet traders are increasingly deserting the Mexican Bolsa, says Michael O’Boyle on Bloomberg. Only six IPC stocks had an average daily trading volume of at least $10m in October, down from 16 in 2013. $10m is “an informal threshold for international funds”, who need to be sure they can find buyers and sellers to trade with. In 2001 Mexican stocks accounted for 13% of the MSCI Emerging Markets index, but that has fallen to just 2% today. The index has gone 16 months without an initial public offering. Latin American asset managers see better opportunities in Brazil.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Reeves urged to axe stamp duty from UK shares held in an ISAChancellor Rachel Reeves is reportedly considering axing stamp duty from UK shares held in stocks and shares ISAs. What could it mean for your portfolio?
-
Family investment companies explained: how the ultra wealthy shield their money from the taxmanWealthy families are increasingly turning to family investment companies to keep more of their money away from HMRC – but what are these arrangements and how do they work?
-
Yoshiaki Murakami: Japan’s original corporate raiderThe originator of Japanese activism, Yoshiaki Murakami, was disgraced by an insider-trading scandal in 2006. Now, he's back, shaking things up
-
Cash in on the vast growth potential of the companies electrifying the worldOpinion Martin Todd, portfolio manager, head of sustainable equities, Federated Hermes, highlights three electrification companies where he'd put his money
-
Galliford Try has firm foundations for strong growthBuilder Galliford Try has a finger in a wide range of pies, notably important work in the public sector
-
Card Factory is a stand-out small-cap going cheapIn a digital world, we still value the personal touch. That’s good news for Card Factory, whose unique business model is suited to weather all economic storms
-
8 of the best smallholdings for sale nowThe best smallholdings for sale – from a medieval cross-passage farmhouse in Taunton, Somerset, to a former farmhouse with an orchard in the Welsh Marches
-
How much gold does China have – and how to cash inChina's gold reserves are vastly understated, says Dominic Frisby. So hold gold, overbought or not
-
How to invest in undervalued gold minersThe surge in gold and other precious metals has transformed the economics of the companies that mine them. Investors should cash in, says Rupert Hargreaves
-
Debasing Wall Street's new debasement trade ideaThe debasement trade is a catchy and plausible idea, but there’s no sign that markets are alarmed, says Cris Sholto Heaton