FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Mexico: Economy Steady in Low Gear – October 2010- IXE BANIF – Monthly Analysis

Motors of Mexican growth start balancing out

As we mentioned last month, the Mexican economy has slowed down. Our forecasts for GDP growth remain unchanged at 4.4% and 3.7% for 2010 and 2011, respectively, in line with Government expectations (of 4.5% and 3.8%). We believe that the economy will not slow down further and that export and local demand will become more equitable. While the slower growth of the US economy reduces the prospects for exports, local demand has started to improve, as seen by the 2Q10 YoY internal consumption growth of 4.8%.

Locally, the Mexican construction segment continues the weakest in the industrial sector, with manufacturing leading the economy. As local demand picks up, we foresee a change in consumption from non-durable to durable goods.

Mexico – Monthly Allocation – October 2010

A political discussion on the budget for 2011 will start in Congress in November. We believe that this is likely to bring volatility to the market, as it should affect the Mexican currency and local bonds. Prudent fiscal policies are likely to continue and we expect the government to propose a cut in fiscal deficit. We also believe that this proposal is already expected and, at least partially, priced in.

Mexican tidbits

Inflation is apparently under control, after positive signs that led the government to admit that its 5.25% target for the year is high and that it should converge to market consensus’ 4.5% (our forecast continues at 4.7%).

After the volatility of the Mexican Peso in August, we believe that the rally is likely to cease and our new expectations for the FX are of 12.4 (from 12) and 12.3 pesos per US dollar by the end of 2010 and 2011, respectively. We base this expectation on the belief that cyclical inflows other than exports, such as remittances (linked to US employment), tourism (linked to US consumer confidence) and foreign direct investments (linked to US private profits) are likely to remain weak.

For October, we have reduced the total number of names in our portfolio from 11 to 8. We have added Soriana and increased the weights of LABB (from 5 to 10%) and Mexchem (from 5 to 15%). We also have withdrawn Chedraui, Femsa and Televisa.

Source: Banif-IXE, 04.10.2010

Filed under: BMV - Mexico, Exchanges, FIX Connectivity, Latin America, Mexico, News, , , , , , , , , , , ,