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Sorry Brazil, Investors Prefer Mexico

 

By: Kenneth Rapoza


Source: www.forbes.com




When strategists at big Brazilian investment firms like Itau steer their wealth management clients away from their home country and up north, to Mexico, it’s worth noting. Brazil is a big country. It’s got a diverse economy. But it’s no longer Latin America’s favorite growth story. It’s going to grow around 2 percent this year, worse than it did last year. It’s fortunes are tied to China, to some extent, an economy still facing a hardish soft landing and needing monetary stimulus.

Mexico, on the other hand, has the U.S., which is growing faster than Brazil this year. Plus, Mexico is cheaper now than China.

When it comes to portfolio investment, Mexico is the clear winner this year. The iShares MSCI Mexico (EWW) exchange traded fund is up 14.09 percent year to date ending July 10 while the MSCI Emerging markets index is up only 0.7 percent. The iShares FTSE China (FXI) ETF is down 7 percent. iShares MSCI Brazil (EWZ) is down 11.3 percent. And last year’s fave, the Market Vectors Indonesia (IDX) is down 5.6 percent.

The return of the PRI to Mexican politics, Mexico’s pricing powers, and its proximity to the largest market in the world has Nomura Securities saying on Tuesday that over the next decade, Mexico is poised to become Latin America’s largest economy, surpassing Brazil, and become one of the emerging markets’ most dynamic economies.

The PRI party and Enrique Pena Nieto have regained the presidency and the Lower House. Unlike in previous elections, the party supports structural, pro-market, reforms.

In relative terms, the Mexican banking sector remains one of Latin America’s smallest, particularly relative to the level of economic development. So there is a lot of room to grow. Private sector debt to GDP is barely 20 percent versus an average of around 50 percent for Brazil and as high as almost 80 percent in Chile.

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