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Feature 111212 Pearce

Monday, November 12, 2012

Mexican Economic Data Gives Rosy Outlook for the Future

By Eve Pearce

A raft of economic data from American publications, on Nov. 6, gave Mexico cause for optimism economically. With Chinese growth finally plateauing and in some cases regressing, investors are looking for the next big emerging markets. The big two in America's sphere appear to be the Philippines and Mexico.

Mexican optimism is based on evidence of success in the damaging war on drug cartels mixed with booming sectors such as tourism and technology.

No Skyfall for These Bonds

The positive information has not been based on traditional data sources such as national growth or employment figures, but on bond yields. According to Bloomberg, Mexican bond yields reached a seven week high last week. This was combined with a strengthening of the Mexican Peso. While yields grew to 5.45% and the Peso strengthened by 0.6%, a survey, according to NASDAQ appears to show inflation is easing rather than gathering pace. Rampant inflation has been a worry for Mexico's finance industry, but after a two and a half year high in September, the inflation rate eased in October.

Cooling inflation rates will be good news to the Bank of Mexico, which may have had to increase interest rates to try and douse the inflation problem. The final decision whether to increase the interest rates from 4.5% will be made by the bank on November 9.* Overall inflation looks set to fall to 3.59% for the year. This is based on the Consumer Price Index, a rating that tracks the price increases of staple foods and common products from televisions to gas and also utilities.

Meanwhile, Santander Mexico managed to sell $1 billion worth of 10-year bonds on Tuesday. This record breaking bond sale is based on a very promising share offering in September. The bonds are now rated 260 points above American bonds of the same type and are the longest low cost bonds in Mexico. The bond offering was four times oversubscribed and this has allowed the bank to restructure its debts and offer yet more optimism on the Mexican economy.

Stock Market Performance

Scotiabank's Eduardo Suarez believes that the stock market in Mexico is waiting on the election result. It was no surprise therefore that The Wall Street Journal reported on the eve of the election in the United States that the Mexican stock market was flat at the close of play. The IPC index finished level on 41,721 points at the end of Tuesday. Losers include Wal-Mart de Mexico V (-1.5%), Cemex (-0.4%) and America Movil L (-0.8%), while one gain was for Televisa, which saw its stock value rise by 2%.

The blue chip, tech stocks were lower. This was put down to consolidation by the WSJ, but should be higher after Mexican tech firm iFone defeated Apple in a court case. The case was initiated by iFone after Apple first launched its iPhone around the world. As iFone's patent and trademark had been registered first, the Mexican court had no choice but to find in its favor. The question now is whether Apple will pay up for copyright infringement or whether it will carry on regardless. Calls to rebrand the iPhone in Mexico at least look unlikely and it is a non-starter around the world as the iPhone brand is already too big. The court case represents iFone's third legal victory over Apple.

Tourism on the Rise

October also recorded the lowest number of murders in five years in the city of Ciudad Juarez, the worst city for drug gang related crime in the country. While it is early, some believe the country has turned a corner after a protracted struggle under outgoing President Felipe Calderon. It may not be related, but will be long term, but the reducing in crime is going hand in hand with an increase in the tourism industry. For many more tourists, Mexico is a good destination for travelling or the start and end point for that once in a lifetime South American cruise. Mexican investment in tourism has grown by 53.7% to about 20 billion pesos [US$1,517,440,000]. International arrivals in 2011 rose to about 23 million people. The continued diversification and development of the tourism industry in the country has given hope to Secretary of Tourism, Gloria Guevara that Mexico's economy can continue to improve and grow over time.

Mexico remains well placed in emerging market stocks and promising growth lists according to American investors.


* note: Officials of the central bank, on Nov. 9, "sent a signal" warning of a possible future adjustment in interest rates if inflationary trends don't change.  The message was reportedly the result of a decision reached during an Oct. 26 board meeting.  (El Universal, Nov. 9, 2012, Mexico, DF)


Eve Pearce is a freelance journalist and commentator who covers issues that include international business, economics, global politics, and sustainability.

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