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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, , , , , , , , , , , ,

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, , , , , , , , , , , , ,

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, , , , , , , , , , , , , ,