WHY MEXICO’S BECOME A HOTTER INVESTMENT THAN BRAZIL
(First published by CNBC. Written by By ANNA ANDRIANOVA.)
Mexico, overshadowed by Brazil for years, has secured its place as the new favorite among investors looking to put cash into Latin America.
“A lot of funds are looking into Latin America as sort of a portfolio of opportunities. Brazil became a lot less attractive in the last year and a half,” said in an interview Clinton Carter, director of research at Frontier Strategy Group. “Mexico has definitely come up as a priority.”
In the past 12 months, iShares MSCI Mexico Capped exchange-traded fund rose more than 17 percent, when a fund trailing Brazil—iShares MSCI Brazil Capped Index Fund—lost over 15 percent.
“The mood in Mexico is clearly constructive. A lot of faith is being put in the ongoing reform process under President Pena Nieto, including deregulation of key industries,” wrote Jens Nordvig, global head of currency strategy at Nomura Securities in a recent note.
Investors have been encouraged by signs that the new Mexican president will continue to push for economic change. Its congress has already approved labor and education reforms and a long-awaited telecommunication bill came through in March to bring competition into a highly concentrated industry.
Other key reforms—fiscal, financial and energy—are expected to come through this year as well, Nordvig says.
“This is an almost unprecedented, comprehensive reform process, which over time will likely deliver higher growth capacity for Mexico,” Nordvig said. He expects the Mexican economy to expand 4.5 percent this year.
The shake-up of the energy sector will be a great boost for the economy, and Frontier Strategy Group says a partial IPO could be in the cards. Revenues of the state-run petroleum company Pemex have been flowing into state coffers, resulting in underinvestment and a decline in output.
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