Mexican stockmarkets lose their spice

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.  

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.