Mexico: One of the Safest Places to Invest Right Now

By Irwin Greenstein

Mexico’s benchmark IPC stock index [MXX] may be one of the safest places to invest now. The index has been down 3.2% since the beginning of September. But geopolitical turmoil could buffer the MXX from suffering as much as other emerging market indexes in coming months.

When it comes to energy, Mexico could benefit from growing tensions between the U.S. and the world’s biggest natural gas supplier, Russia. Overall, unrest in many oil-producing countries around the world makes Mexico a relatively stable provider of crude and natural gas.

Mexico is the world’s sixth largest oil producer and a major exporter to the U.S. Oil revenue is one of the country’s top sources of foreign currencies.

Of course, no oil provider is immune to the recent decline of a barrel of oil. When the hurricanes blow off into oblivion, chances are the reduced consumption of oil worldwide could keep prices in a slide.

Moreover, Mexico’s offshore oil production has been in decline this year, affecting its crucial export revenues.

At the same time, relatively high yields on Mexican debt compared to U.S. Treasuries are attractive to investors.

Mexico’s central bank continues to tighten borrowing costs, setting its key interest rate to 8.25% and pushing the spread between Mexican and U.S. benchmark overnight rates to 6.25 percentage points, the widest since late 2005.

The high interest rates and the U.S. shakeout of the banking sector have reinforced confidence in the peso. The thinking is that as Lehman Brothers (NYSE: LEH) and Merrill Lynch (NYSE: MER) get crushed, the silver lining here is that the world markets are actually taking a step closer to stability — at least that’s the bullish take on the catastrophes.

If that’s the case, U.S. interest rates could start to decline again, making the yield on Mexican bonds even more attractive.

Comments

[Mark Adams:]

Wow, that's the best news I've heard in weeks. I inherited a whole bunch of Mexico fund, but don't have access to it to move it to a safe harbor. Then again, I haven't figured out where that safe harbor might be as I watched it go down along with everything else. I figured to go long in it anyway, but you get worried, you know.

2008 Sep 17 05:12 PM

[bsharvy:]

Wishful thinking isn't news.

2008 Sep 18 08:00 AM

[Augustus:]

Mexico is about 100% dependent upon the oil export revenues. They have screwed up the production operations and it is rapidly declining. Internal oil consumption has been increasing at a pretty good rate. Combining lower production with higher internal use will cause exports to fall off the cliff. When it falls far enough (maybe 2 yrs, maybe 3 yrs) the govt. and the economy will crash. Mexico has somewhat outperformed other emerging markets for the last 6 mos. The Mexico etf is the most compelling longer term short on the board.

2008 Sep 18 09:27 AM

[wallyjm:]

invest in australia, chile, argentina, brazil instead of mexico. dollar crash! ones listed better choice.

2008 Sep 18 01:03 PM

[The X Man:]

I've lived in Mexico City for 25 years, then, the last 24 years in the US. Traveled to Mexico last year and found it bouncing back into a second "harmonic" wave of the emerging economics of the 50's. Maturity is reflected in the infrastructure by effectively dealing with pollution on cities of high density and production. On the global diversification arena, Mexico has achieved increased independence from the US and has strong ties with Germany and France in technology as well as foreign policy to support long term growth. Keep in mind the US has had a longer cycle on economic emergence and possibly a longer cycle on recovery as well. Mexico is on the second round and may just as well know how to better deal with global volatility than other nations.

2008 Sep 25 11:02 PM

[jcrash:]

heh...not so good, afterall.

2008 Oct 06 11:30 PM

[miki:]

It is interesting to read your comments. what is your idea on mexican corporate bonds in a dollar rise and financial crisis in neighboring country,-USA,- affects corporate bond trend. Any comment will be appreciate it. thanks. [e-mail]

2008 Nov 12 09:54 PM