Mexico is in the cross hairs of the new President, who is hoping to seek out a better NAFTA deal for American workers. But while headlines are mainly a narrative of Trump vs the Mexicans, back in Mexico domestic issues from rising crime, rising gasoline prices, and a woefully unpopular president Enrique Pena Nieto are all adding insult to injury.
On the flip side of all this disharmony south of the border, a number of large investors actually like what they see. BlackRock told Forbes on Jan. 26 that it liked local currency bonds and was building on that position for its total emerging market balanced fund (BEEIX)BEEIX 11,73 0,00 0,00%. In fact, they were overweight. Yield in pesos was around 7.5% for the 10 year Mexican government bond. Priced in pesos, of course. So advisors need faith that the peso goes the other way, as in gets stronger, over the long haul. Their clients will have to agree with that story. Investors will also need to stomach headline news that has framed the debate on immigration and NAFTA as POTUS vs Mexico.
Regardless, Mexico has more to worry about than Washington. Besides a security crisis spurred on by drug cartels, the Manufacturing PMI is in shambles. It fell four points to 42.8 in January, signifying contraction. Consumer confidence fell to 68.5 from 84.4 in December according to the Instituto Nacional de Estadística y Geografía (INEGI).
Mexico’s Foreign Minister Luis Videgarai said last week that Mexico will seek to deepen ties with China. China’s president has (ironically) come out in support free trade and globalization, while the US is ‘turning medieval’ on Mexico, says Jan Dehn, head of research for the Ashmore Group, an emerging market investment firm with offices in London and New York. Investors will be wise to note that Mexico is way more dependent on U.S. trade than China. Nearly 80% of Mexico’s exports head to the U.S. And China may very well see Mexico as a competitor, not only for its Made in China parts going to the U.S., but also all of Latin America. In other words, these two are strange bedfellows despite sharing similar concerns over Trump’s trade talk.
There is a modicum of good news for the big Mexico ETF holders (EWW)EWW 66,95 0,00 0,00%. The Mexican economy appears to have entered the current period of uncertainty with considerably positive momentum. The economy expanded at a stronger rate of 2.2% yearly in the fourth quarter of 2016 than the 2% gain in the third. Gross fixed investment was also stronger than expected in November, up 2.8% vs 2.5% expected. The iShares Mexico ETF is still a laggard versus its benchmark, barely up 3% while the rest of emerging is up nearly 7% as measured by BlackRock’s MSCI Emerging Markets (EEM) ETF EEM 40,84 +0,07 +0,17%.
Viva Mexico? Stay tuned… Mexico Goes “Medieval”, But Big Investors Like It
Mexico is in the cross hairs of the new President, who is hoping to seek out a better NAFTA deal for American workers. But while headlines are mainly a narrative of Trump vs the Mexicans, back in Mexico domestic issues from rising crime, rising gasoline prices, and a woefully unpopular president Enrique Pena Nieto are all adding insult to injury.
On the flip side of all this disharmony south of the border, a number of large investors actually like what they see. BlackRock told Forbes on Jan. 26 that it liked local currency bonds and was building on that position for its total emerging market balanced fund (BEEIX)BEEIX 11,73 0,00 0,00%. In fact, they were overweight. Yield in pesos was around 7.5% for the 10 year Mexican government bond. Priced in pesos, of course. So advisors need faith that the peso goes the other way, as in gets stronger, over the long haul. Their clients will have to agree with that story. Investors will also need to stomach headline news that has framed the debate on immigration and NAFTA as POTUS vs Mexico.
Regardless, Mexico has more to worry about than Washington. Besides a security crisis spurred on by drug cartels, the Manufacturing PMI is in shambles. It fell four points to 42.8 in January, signifying contraction. Consumer confidence fell to 68.5 from 84.4 in December according to the Instituto Nacional de Estadística y Geografía (INEGI).
Mexico’s Foreign Minister Luis Videgarai said last week that Mexico will seek to deepen ties with China. China’s president has (ironically) come out in support free trade and globalization, while the US is ‘turning medieval’ on Mexico, says Jan Dehn, head of research for the Ashmore Group, an emerging market investment firm with offices in London and New York. Investors will be wise to note that Mexico is way more dependent on U.S. trade than China. Nearly 80% of Mexico’s exports head to the U.S. And China may very well see Mexico as a competitor, not only for its Made in China parts going to the U.S., but also all of Latin America. In other words, these two are strange bedfellows despite sharing similar concerns over Trump’s trade talk.
There is a modicum of good news for the big Mexico ETF holders (EWW)EWW 66,95 0,00 0,00%. The Mexican economy appears to have entered the current period of uncertainty with considerably positive momentum. The economy expanded at a stronger rate of 2.2% yearly in the fourth quarter of 2016 than the 2% gain in the third. Gross fixed investment was also stronger than expected in November, up 2.8% vs 2.5% expected. The iShares Mexico ETF is still a laggard versus its benchmark, barely up 3% while the rest of emerging is up nearly 7% as measured by BlackRock’s MSCI Emerging Markets (EEM) ETF EEM 40,84 +0,07 +0,17%.
Viva Mexico? Stay tuned…