Investing in Mexico's Forgotten Emerging Market Charles Sizemore - Forexpros
go to original August 21, 2012

Mexico gets no love. It’s not quite a developed market, but being next door to the United States it’s not quite remote or exotic enough to be an alluring emerging market either. And starting with the letter “M,” it doesn’t fit into any popular acronyms.

Lest you think I am joking, the four countries that comprise the “BRIC” - Brazil, Russia, India and China - have nothing in common other than the fact that their first letters make a word that sounds good in marketing literature. Mexico, Turkey, and Indonesia would all have been better choices than Russia - all three are promising emerging markets whereas Russia is a decrepit petrostate on the decline - but it’s hard to form an acronym with their first letters. Go ahead. Try. I’m waiting.

Investors who overlook Mexico do so to their own detriment. In addition to being an attractive market in its own right - and the second-largest in Latin America after Brazil - Mexico is also a large investor in other Latin American markets, and some of its multinational companies have a truly global scope.

The Mexican stock market has also been a star performer in 2012. At time of writing, the Mexican IPC Stock Index was up over 10 percent, making it one of the better performing markets in the Americas.

Mexico’s economy is tied closely to that of the United States - “El Coloso del Norte” accounts for more than 70% of Mexico’s substantial exports - so a relapse into recession by the United States would severely crimp growth south of the border. I am not expecting a U.S. recession, however, and instead expect the U.S. economy to muddle through with positive, if modest, growth.

The drug-related violence in northern Mexico is also disconcerting - and bad for cross-border commerce and tourism - though I don’t see it being a deal breaker for investors in Mexican stocks. If I were the CEO of a U.S. manufacturing firm, I might think twice about setting up a new factory in Mexico. But as a portfolio manager looking for access to rising Mexican consumer incomes, the risks are tolerable.

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