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Mexico: The bad news is finally out – December 2009 IXE Banif Market Analysis

Fitch has finally downgraded Mexican debt. However, as always, there is good news with the bad, for they say that the outlook is now stable. In addition, Congress has finally approved the tax increase, which should result in an improvement in government revenues, although the decision was not sufficient to avoid the downgrade. S&P has still to give its verdict on the country’s outlook. Expectations are that they will avoid downgrade and, as Fitch did, maintain a stable outlook, but with a higher notch.”

Mexico – Monthly Allocation – December 2009

The economic outlook seems to be improving. Although still negative, indicators are above expectations. GDP dropped 6.2% in 3Q09, which compares to the market’s estimated drop of 6.8%. For 2010, investors expect a turn around, estimating a 3.1% growth. Much still remains based on an improvement in the USA. Approximately 27% of the country’s economy depends on its neighbor.

Inflation watched closely

Inflation has not been a concern up to now, continuing below the 4% level. However, expectations are that the beginning of the year will show it moving above this level, increasing concerns that the Central Bank will start moving basic rates up. Expectations are that the beginning of an upward trend in rates will only start in September 2010. Investors will be on the lookout for the Mexican’s Central Bank estimate, scheduled for release during the first week of December.

Other data investors are going to be paying a lot of attention to during the next couple of weeks are on the US, especially Black Friday sales that will give an indication of how good (or bad) Christmas sales will probably be. An improvement should indicate an increase in remittances to Mexico, improving the Mexican economy.

No real concern with the change to Central Bank

The change in the President of the Central Bank is no real concern. Although doing a good job, the leaving President was eternally in dispute with President Calderon. Replacing him is Mr. Carstens, who is the Secretary of Finance, and who has good international exposure. The question that arises is who is going to replace him as Finance Secretary.

December is the month with the highest sales, due to Christmas. Thus, we are basing our portfolio on the stocks of companies that will benefit from this. We are not recommending any shorts this month.

Outperforming the IPyC – Recommended BUY Portfolio (“LONG”)

Stock – Catalysts/Fundamentals

AMXL – excellent results from the launching of promotions for post paid subscribers

AXTEL – possible change in foreign shareholder legislation

CEMEX – should successfully place convertible bonds

FEMSAUBD – reducing due to uncertainties coming from rumors

GAP – December traffic should be positive

GEOB – trading at attractive valuations

GMEXICOB – defensive play on copper price increases

ICA – expectations that it will win the tenders for more public projects

Peñoles – precious metal price seasonal increase

Simec – better outlook on USA auto sales in 2010

Televisa – looking for a JV to participate in wireless spectrum auctions

URBI – should do well on Moody’s and S&P’s upgrade and on attractive valulations

WALMEXV – strongest month for retailers with 4Q representing 30% of sales.

Source: IXE Banif, 01.12.2009

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