The Economy of Mexico: Five Ways to Put Some Black Beans and Rice In Your Portfolio
by Alexander Green, Chairman, Investment U
Monday, December 3, 2007: Issue #737
I just returned from a investment conference at the fabulous Fairmont Mayakoba in Riviera Maya, Mexico.
My colleagues and I – including Louis Basenese, Keith Fitz-Gerald, Horacio Márquez, Karim Rahemtulla and others – covered virtually every topic under the sun, from the outlook for oil and interest rates to the global credit crunch to world stock markets.
Of course, on a trip like this it never hurts to take a closer look at the local investment landscape. And, when it comes to the economy of Mexico I like what I saw.
The Economy of Mexico and the Peso
For starters, the Mexican peso is virtually unchanged against the dollar over the past five years. Compare that to the 38% swan dive the greenback has taken against a basket of the world’s major currencies over the same time period.
When I was in France a few weeks ago, for example, every time I changed a hundred dollar bill into euros, someone would throw back a couple of bills and a smattering of coins. You’re tempted to look down and say, “That’s it?”
Yes, that’s it. However, the Federal Reserve can take pride in the fact that the dollar is holding up well against the mighty Mexican peso.
All kidding aside, if you’re trying to budget a trip overseas, you might start by considering Mexico. As an investor, it wouldn’t hurt to look there, either.
The Economy of Mexico… A Profitable Run “South of the Border”
Sure, Mexico has a checkered economic past. Corruption. Hyperinflation. Deficits as far as the eye can see. And a currency that tended to go bump in the night.
But take a look today. Five years of steady economic growth. A balanced budget (something Washington can’t manage). And a sharp reduction in foreign debt.
Last week Mexico took another historic step. For the past 24 years, the government required that corporate earnings be adjusted for inflation. This made comparison between Mexican companies and their Latin American counterparts extremely difficult.
“These adjustments were so enormous it was hard to know what the numbers meant,” says Noel Duget, a money manager at Aravis Capital Advisors. “I was a banker in emerging markets in the 1970s and 1980s and it was an absolute nightmare.”
The new changes highlight the maturity of the Mexican market. And it makes the region more attractive for institutional investors, too.
Of course, part of the reason for the change is that inflation has moderated. Consumer prices in Mexico rose at a 3.7% annual rate in October. That’s mild by historical standards.
How to Invest In the Economy of Mexico
With the Mexican economy strong, its currency stable, inflation down and local companies using generally accepted accounting principles, now is a good time to add Mexico to your stock portfolio.
But buying Mexican foreign shares isn’t easy. Fortunately, you don’t have to. A number of major Mexican firms trade on the New York Stock Exchange in the form of ADRs, including Telefonos de Mexico (NYSE: TMX), Cemex (NYSE: CX), and Grupo Televisa (NYSE: TV).
But there is a still easier way to capture the performance of the Mexican stock market: iShares MSCI Mexico Fund (AMEX: EWW).
This publicly traded index fund holds all of Mexico’s leading companies. Its annual expenses are low. And its performance has been nothing to sniff at, either. Over the past five years, its average annual return has been 40.2%.
Clearly, this is one hot tamale. And with Mexican businesses expected to profit handsomely from the growing middle class, it’s not too late to take your portfolio south of the border.
Good investing,
Alex
Today’s Investment U Crib Sheet
Telefonos de Mexico, Cemex and Grupo Televisa make up 28% of EWW’s holdings. The fund has crushed the S&P. Take a look…
America Movil (AMXL: MX), the largest wireless operator in Latin America, is the fund’s biggest holding. For every dollar invested in EWW, 25 cents goes into the Mexico-based communications giant.
Related Investment U Articles:
- The Emerging Market in the Sweet Spot Between U.S. Demand and Chinese Growth
- Enough Dra(ch)ma: The Euro Will Thrive… When PIIGS Fly!
- What This Top Asian Fund Manager Thinks About the U.S. Economy
- TIPS Are the Proof of The Fed Distorting the Financial Markets
- The Purchasing Power Portfolio: This Five-In-One Investment Is the Ultimate Way to Diversify
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Alexander Green is the Chief Investment Strategist of Investment U. A Wall Street veteran, he has more than 20 years of experience as a research analyst, investment advisor, financial writer and portfolio manager.
