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 Business News | January 2006 
A Market Comes To Life
 Eliza Barclay - Houston Chronicle
| | The Mexican Stock Exchange. |
Mexico City - There was plenty to toast here this New Year's Eve if you happened to have profited from Mexico's thriving stock market, that is.
Once a market notorious for its vulnerability to abrupt peso devaluations and the ups and downs of politics, Mexico gained ground in 2005 with Mexico's IPC stock index closing up nearly 38 percent for the year. On Friday, the index fell 30.09 points to 17,802.71, still a strong closing figure for the year.
When asked about Mexico's success in a year when the performance of the most widely followed U.S. indexes showed small gains, and the Dow industrials lost ground, analysts point to a variety of factors, some internal, others external.
"The Mexican stock market has been dormant for a long time," said Rogelio Ramirez de la O, director of Ecanal, a private economic analysis firm in Mexico City. "But now it's very difficult to ignore its success."
De la O said high oil prices have been a boon for Mexico, boosting the economy's leading source of revenue.
Other pluses cited by market observers here have been economic reforms and political steadiness.
There's an outside factor that also helped inspire enthusiasm in Mexico's stock exchange. Markets in emerging economies around the world, including Russia and Brazil, are hot right now.
The yields on competing investments, like investment-grade bonds, remain low, and money managers have a lot of cash on hand, fueling investments in countries with improved growth prospects such as Mexico, said Jose Barrionuevo, director of Barclays Capital in New York.
Difference of opinion
Not everyone agrees about whether Mexico's stock market already has peaked or is likely to keep rising during 2006, which is a presidential election year here.
"We hope the new president can keep the strong markets going, and we're looking for even stronger growth in the future," said Javier Viveros, an analyst for the Bursametrica, an economic consulting firm in Mexico City.
In early December, the IPC stock index of 35 stocks peaked at 18,180, an all-time high. De la O questioned whether that is the final peak in the rally on the exchange, known as the bolsa, which lists about 130 stocks.
"Mexico can't sustain its current boom," de la O said. "There is plenty of room for correction, and I predict a correction earlier rather than later in 2006."
And despite the bolsa's success, the country's overall economic growth rate, estimated at about 3 percent, has not been stellar.
"Over the medium term, the challenge for Mexico is achieving a consistently strong 4 to 5 percent growth rate. But that will likely require progress on tax reform and energy reform that reduce operating costs for Mexican firms while providing of fiscal certainty to private investment," Barrionuevo of Barclays said.
"Despite the fact that we will still see some volatility around the presidential election on July 2nd, there is a clear sense that Mexico's economic policy won't change much."
Political volatility subsides
As Mexico's president, Vicente Fox, approaches the last year of his six-year term, the country's vibrant markets may be one of his more positive legacies.
But de la O, who is advising a presidential candidate from a rival party, says Fox isn't due all the credit for Mexico's success.
"There is a perception that it is mainly his work, but the conditions were developing apart from Fox and his policies," he said.
Given Mexico's history of financial jitters around election time, 2006 could prove to be less of a stable year with the presidential election on the horizon. Fox cannot run because the law limits presidents here to one term.
"For many years, Mexico was not a desirable place for investors because it was very reactionary to political ups and downs," Viveros said. "But now both domestic and foreign investors are more mature."
Earlier in the year, Fox and other politicians unsuccessfully tried to knock the popular leftist presidential candidate, Andres Manuel Lopez Obrador, out of the race by disqualifying him through questionable legal terms. The markets reacted calmly through the brief phase of unrest, Viveros said, indicating a renewed sense of stability.
Nevertheless, some analysts have speculated that if the winning candidate is someone like Lopez Obrador, who so far has indicated little support for private investment in key sectors such as energy, the markets may face a shake-up.
"Investors were and have been a little nervous that will be a major political change in the elections in 2006," Viveros said.
Money managers have been extolling Mexican companies like retailer Wal-Mart de Mιxico, home builder Desarrolladora Homex and cement maker Cemex, whose annual reports have pleased shareholders.
The latter two are reaping the rewards of the boom in residential construction, particularly outside major cities such as Mexico City and Monterrey, as interest rates on building and mortgage loans decline allowing buyers to finance construction.
Big ambitions as stock rises
Wal-Mart's Mexican operation, which was initially built on megastores in Mexico City, has been using low prices to grab market share and is expanding into rural areas. During a year when its shares are up more than 50 percent, it has been testing a new design, a bit larger than a convenience store, to tap into even smaller communities.
According to Viveros of Bursametrica, Mexico's bolsa offers investors an interesting alternative as a trustworthy emerging market. Lawmakers approved reforms in Mexican securities laws in December designed to encourage investment in publicly traded companies by bringing the country in line with practices that are common elsewhere.
Viveros said the Mexican government has $69 billion in reserves, and it has been able to get rid of most of the burdensome debt incurred after the serious peso devaluation crisis of the mid-1990s.
Pension reform has been bearing fruits since its execution in 1999. With the speedy growth of these retirement saving program, Mexican private pension funds now handle about $57 billion, according to Barclays Capital.
"The first conditions were economic, including the passage of structural reform policies that favored economic growth," Viveros said. "We've also had low interest rates and low inflation, which is a big change from the past." |
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