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Mexico: Market is Bottoming Out – June2009 IXE – Banif Analysis

Mexico has probably seen the worst of economic data, but all efforts to revert the negative situation will only show up in the second half. The Government was actually quick in implementing measures to contain the downturn but, despite the continuous drain to the country’s fiscal situation, fruits from these efforts will only come about in 2H09.
Rating agencies are keeping a close watch on indicators and the imminent reduction of the country’s rating. This would be badly regarded by the financial community for, although it does not signify losing the valuable Investment Grade label, a downgrade is always a blow.
There is always good to the bad.
Economic activity dropped by 8.2% in 1Q09 with industrials the worst hit, contracting 9.9%. This is the worst performance since 1995. Exports are down but worse than that, imports have also dropped. On the other hand, the dollar continues to weaken around the globe and against the Mexican Peso, stabilizing at around P$ 13/US$. This should allow the Bank of Mexico to reduce interest rates by 50 bps in June and another 25 bps in July, to end the year at 4.5%.
Summer is here, with or without tourists
Mexico has always been a tourist pole, attracting not only the neighboring Americans but also people from the rest of the world looking for warm seas and white beaches. The country invested heavily in hotels and in infrastructure, successfully attracting tourists. However, there is one thing that all are afraid of, and that is illness whilst on holidays. The influenza (swine flu as generally known) hit Mexico the worst, creating a barrier between the white beaches and the tourist. The Government has taken steps, but there are no expectations of a full house this year.

On this note, we are putting into our portfolio this month some of the stock most affected by the influenza, such as airports. On the other hand, we are decreasing the weight of metals in our portfolio, as they have performed well and now look expensive.  Download: Mexico – Monthly allocation – June 2009 IXE Banif
Outperforming the IPyC – Recommended BUY Portfolio (“LONG”)
Stock – Catalysts/Fundamentals
AMXL – underweight on interconnection losses
Autlan – Higher manganese prices and discounted to peers
Bimbo – positive results even in the USA
Cemex – decreasing stake, as still waiting for its debt restructuring
GAP – government actions for summer should help airports
GEO – with an EV/EBITDA of 5.7x, it has the best valuation in the sector
GMexico – still waiting for the chapter 11 announcement in July
ICA – strong candidate for the Panama Canal expansion
Mexichem – positive results from efficiency and the strengthening of the Peso
Televisa – increase in the amount of viewers still due to the flu
Urbi – although not the cheapest, has traded at attractive valuations
Walmex – performing better than peers.

Source: IXE & Banif, 01.06.2009

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , , , , ,

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