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Mexico: Drifting Toward Troubled Waters – September 2010- IXE BANIF – Monthly Analysis

Slow US economy decreases Mexican expectations

The structure of the Mexican economy is unchanged when it comes to the breakdown between local and export markets, and we base our expectation for Mexican economic growth on both markets. We continue to expect a 4.4% GDP growth for 2010 (growths of 4.3%, 7.6%, 4.0% and 1.9% for each quarter, sequentially) while other, more aggressive houses, have reduced this from 5% to nearly 4%.

Despite the most recent reduction in 2H10 growth expectations, we maintain our figure in the belief that the local market will compensate for a likely weaker export scenario that heavily depends on the US economy.

We have assumed since last month that the US would grow at a lower than previously expected pace. Locally, the Mexican construction segment has been the weakest in the industrial sector, while manufacturing has led the economy. We expect export companies, which have been suffering from the weaker foreign market, to recover by year-end, although car exports have performed well even during these tougher times.

Mexican tidbits

Mexico’s inflation has been increasing and, from the current annualized 3.7%, we maintain our expectation of it reaching 4.7% by year-end. We believe that our expectation of interest rate hikes in 3Q11 might become market consensus soon.

The FX has moved negatively lately, after three months without definite direction. It has surpassed the P$13/US$ line, the worst level since the end of June. We still expect it to be at P$12 by year end but, if we do not see a downward movement over the next weeks, we might change this expectation to a P$12.25-12.35 range. We do not believe this potential change in the FX scenario would cause any change to Mexican exports, with the main driver here continuing to be the strength of the US economy (and demand).

For August, we have added Alsea and Femsa to our portfolio and increased the weights of America Movil (from 20% to 25%) and Walmex (from 10% to 15%). We also reduced the weights of GenomaLab and Geo (from 10% to 5%), and have withdrawn Cemex.

Read the full market analysis Mexico – Monthly Allocation – September 2010

Source: IXE-Banif, 01.09.2010

Filed under: BMV - Mexico, Latin America, Mexico, News, Risk Management, , , , , , , ,

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