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Mexico: Needed or Unneeded Changes – July 2009 IXE – Banif Market Analysis

Indications are that a new beginning is on its way. US indicators point to the worst being over. The second half of the year starts with signs of a new beginning. The question is not if Mexico will start running when the starter pulls the trigger, but by how many months will it lag behind.

History is unable to repeat itself
Expectations are now that the Mexican economy will contract 8% in the 2Q09 (5.7% previously). Not even the likely improvements in house and car sales in the USA seem to help.  This is the largest slump since 1995, but recovery from that crisis was quick, as it only related to internal factors, so the strong growth of outer elements strengthened the patient.

This time things are not as easy. This time the only reason the outside world is not in as bad a condition as Mexico is because it caught a milder form of the flu. Although data released in the next few months should show 2Q09 as the worst period, this does not mean that from now on the Mexican economy will recover quickly, as production was down substantially and consumption only rose as people prepared for confinement because of the human version of the Swine Flu.

The government is doing all it can to reduce the pain, but the medicine is weak. It is reducing public spending but needs approval from Congress that is currently on summer holidays. Currently its main effort is on controlling the Peso at around P$ 13.00/US$. In addition, it is preparing for structural changes. The crisis that caught the world off guard demands it. Oil prices at US$ 150/boe (even if they did not stay there for long) led to the need for more efficient engines. Mexico does not have the experience to supply them and will need to adapt quickly, or lose ground at its economic base, the USA.

Starting the second half on first half results
July is the month when Mexican companies publish 1H results. Although we do not expect anything brilliant, we believe that some opportunities arise. The construction sector, which has lagged the market, will probably be one of the big winners from now on, as government incentives sink in.  We are staying out of the airport segment this month as we expect to see decreasing traffic data. This month we do not recommend any shorts.Download: Mexico – Monthly allocation – July 2009

Outperforming the IPyC
Stock – Catalysts/Fundamentals
AMXL – good 2Q09 earnings on a 17% traffic growth
AUTLANB – expected steel/ferroalloy price recovery
BIMBOA – will continue to show positive synergy gains from its recent acquisition
CEMEXCPO– expectations of a refinancing announcement in July
KOFL – strong performances of KOF and convenience stores
GEOB – will likely post the best report in the sector
GMEXICO – close to a l ruling on Asarco with creditors analyzing best offer in July
GRUMAB – expectations of positive operating results in 2Q09
IDEALB-1 – we believe that 2Q09 will show a 50% EBITDA growth
MEXCHEM – expected double-digit EBITDA growth
TLEVISACPO – strong 2Q09 coming from the consolidation of cables and advertising
WALMEXV – will continue to outperform peers with double-digit growth

Source: IXE & Banif, 01.07.2009

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

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