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Mexico: Too early to be optimistic – August 2009 IXE – Banif Market Analysis

The Mexican economy seems to have hit rock bottom in 2Q09, but a strong recovery will not occur in the short-term. The Mexican Central Bank cut interest rates by 25 bps and should now maintain them at 4.5% for the rest of the year.
The President should suggest more structural changes in the economy in coming months, but expectations are that Congress will not approve them. All measures implemented by the Government during 1H09 (mainly incentives for the construction sector) could reflect positively in 3Q09, with results expected to be a little better. However, GDP should still present a 4.8% drop.

Mexico – Monthly allocation – August 2009

The USA’s 2Q09 GDP, released on last Friday (July 31), came at -1% which is better than market consensus of -1.5%. Although better than expected by market, the GDP composition does not show any consistent and significant improvement. In particular, the consumption of families worsened again after a slight improvement in 1Q09. Therefore, the Mexican economy cannot rely on short-term improvements in its exports to the US and remittance flows, the external market will not improve enough.
Additional Risks
It is important to mention that there are rumors of a risk to Mexico’s credit rating, which could suffer a downgrading by credit agencies.
1H09 seems to have reached rock bottom
Overall, figures in 1H09 seem to have hit rock bottom for both the Mexican economy and companies. However, we do not see any strong recovery in 3Q09 (forecast of a 4.8% drop in GDP) due mainly to its dependency on the US. Therefore, we are suggesting a still more defensive portfolio for August, due to the lack of positive triggers and because of the risk of Mexico suffering a credit downgrade.
Outperforming the IPyC
Stock – Catalysts/Fundamentals
AMXL – reported strong 2Q09 earnings
AUTLANB – strongly laggging the MexBol index
OMAB – discounted in relation to its peers
BIMBOA – good 2Q09 results and expectations are from improvement in the USA
CEMEXCPO– expectations of a refinancing announcement in August
FEMSAUBD – organic growth and increase in sales due to hot weather
GEOB – good 2Q09 results
GMEXICO – expectations are for a favorable judicial decision to its liabilities
GRUMAB – better operational performance than the sector
MEXCHEM –already placed almost 80% of its P$ 2.6 bn capital increase
TLEVISACPO – reducing weight due to higher competition
WALMEXV – still outperforming the sector

Source: Banif-IXE, 03.08.2009

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

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