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  • Mexico/Brazil – Latin Americas Economic Super Powers

    Mexico/Brazil - Latin Americas Economic Super Powers

    I am a strong advocate of investing in emerging markets, and I am especially a fan of investing in Latin America ("LATAM"). LATAM has proved its resilience in the recent global economic crisis, and I believe offers some attractive opportunities with more and more countries debt being upgraded to investment grade and stable economic growth. Moreover, the World Bank has stated that over the past decade almost 50 million people have joined the ranks of LATAM's middle class -an increase of 50% - thanks to solid economic growth and employment across the region. A growing middle class is the strongest indicator of economic growth which offers tremendous investment opportunities as LATAM economies evolve.

    In LATAM, there is forever a developing battle between its two economic "super powers" Brazil and Mexico. Over the past year, Brazil's Gross economic growth has flattened at 1.47% with anticipation of an average increase of 3.0% through 2014 and an average inflation increasing 5.6% by 2014. Mexico's Gross GDP increased 3.78% in 2012 from 2011 and average inflation increasing 3.7% by 2014.

    Both countries offer tremendous microeconomic investment opportunities, but as a long term macroeconomic investor, I believe Mexico under the new administration will begin to realize real economic growth similar to what Brazil has realized since 2000. What do I mean exactly? Here are some key economic statistics.

    Lagging economic indicators:

    • The Average Gross GDP rate from 2000-2012 for Brazil was 3.46% and 2.35% for Mexico
    • The average Gross GDP/Population rate for Brazil from 2000 to 2012 was 2.21% compared to Mexico's 0.71%
    • Mexico's unemployment increased 54% from 2000 through 2012 and is currently at 4.8%.
    • Brazil's Unemployment decreased 15.5% from 2000 through 2012 and is currently 6%.

    Leading economic indicators:

    • The average Gross GDP rate from 2012-2017 projected by the IMF is 3.68% for Brazil and 3.43% for Mexico
    • Projected consensus real GDP through 2014 is 2.97% for Brazil and 3.57% for Mexico
    • The estimated average GDP growth rate per person (GDP/Population) through 2017 is 3.30% for Brazil and 2.34% for Mexico
    • Using the IMF's projections, Brazil's unemployment rate will increase to 7% by 2017 while Mexico's will decrease to 4.5% from 4.8%
    • Projected average inflation rate through 2014 is 5.53% for Brazil and 3.67% for Mexico
    • Projected unemployment is expected to be 7% for Brazil by 2017 and 4.5% for Mexico which is a decrease of 6.25%

     

     

     

    Economic Statistics

    Brazil

    Mexico

    Average Gross GDP Rate from 2000-2012

    3.46%

    2.35%

    Projected Average Gross GDP rate from 2012-2017

    3.68%

    3.43%

    Average GDP/Population Growth Rate 2000-2012

    2.21%

    0.71%

    Projected Average GDP/Population Growth Rate 2012-2017

    3.30%

    2.34%

    Projected Average Inflation Rate through 2014

    5.53%

    3.67%

    Projected Real GDP Growth through 2014

    2.97%

    3.57%

    Unemployment Rate

    6.00%

    4.80%

    Change in Unemployment from 2000-2012

    -15.49%

    54.17%

    Projected Unemployment Rate in 2017

    7.00%

    4.50%

    The economic projections presented above are based on Mexico's current policies and initiatives. Where I believe Mexico offers real investment opportunities is in its future. Labor costs in Mexico have been stable, and it continues to sign multiple free trade agreements which will expand its GDP. Mexico is determined to strengthen its already strong relationship with the US, and with immigration from Mexico to the US decreasing and continued partnerships on the war on drugs, the relationship is strengthening daily. Mexico is also focusing on improving Mexico's global competitiveness specifically against China and other emerging economies. The administration has focused on key fiscal reform specifically in Energy and Labor, and since Mexico borrows at a rate of 5% compared to Brazil's is 9.48% for 10 year notes, it can access the capital markets at a discount to Brazil and most of its peers.

    Ways to invest in Mexico?

    For macro equity investors, I believe the best way to invest in Mexico is investing in the iShares MSCI Mexico Investable Market Index (NYSEARCA:EWW) trading on NYSEArca. In addition to the fundamental positives mentioned above, here are some technical buy signals for EWW:

    • It is trading close to the lower Bollinger Band
    • It is trading below its 50 day Exponential Moving Average
    • The Relative Strength Indicator ("RSI") is 34.4 an indicator that it has been oversold.

    For micro equity investors, there are 20 Mexican Companies that have ADR's that trade on the NYSE which may be interesting subjects for further research.

    Company Name

    Symbol

    AMERICA MOVIL SAB DE CV

    AMX

    CEMEX SAB DE CV

    CX

    COCA-COLA FEMSA SAB DE CV

    KOF

    CONTROLADORA COMERCIAL MEXICANA SA DE CV

    MCM

    DESARROLLADORA HOMEX SAB DE CV

    HXM

    EMPRESAS ICA SOCIEDAD CONTROLADORA SA DE CV

    ICA

    FOMENTO ECONOMICO MEXICANO SAB DE CV

    FMX

    GRUMA SA DE CV

    GMK

    GRUPO AEROPORTUARIO DEL PACIFICO SAB DE CV

    PAC

    GRUPO AEROPORTUARIO DEL SURESTE SA DE CV

    ASR

    GRUPO CASA SABA SA DE CV

    SAB

    GRUPO FINANCIERO SANTANDER MEXICO SAB DE CV

    BSMX

    GRUPO RADIO CENTRO SA DE CV

    RC

    GRUPO TELEVISA SA

    TV

    INDUSTRIAS BACHOCO SAB DE CV

    IBA

    MAXCOM TELECOMUNICACIONES SAB DE CV

    MXT

    TELEFONOS DE MEXICO SAB DE CV

    TMX

    TELMEX INTERNACIONAL SAB DE CV

    TII

    TELMEX INTERNACIONAL SAB DE CV

    TII A

    VITRO SAB DE CV

    VTO

    For fixed income investors, Mexico has investment grade debt, and the Mexico 10yr bonds are yielding at 5.409% which is an attractive yield.

    What to consider if investing in Mexico:

    • Mexico is very dependent of the US economy (highly correlated)
    • Mexican peso is inversely related to the USD. Monitor how the market moving?
    • MXN will depreciate when the Fed starts rising which may lead to more exports if MXN rates stay constant which is likely.
    • Increased competition from China and Asia
    • Mexico's labor cost compared to China
    • LATAM economic growth is heavily correlated to Commodity prices
    • Progress on Mexico's war on Drugs
    • Industrial production month to month changes - growth has recently slowed

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: EWW, long-ideas
    Dec 04 9:58 AM | Link | Comment!
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