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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 We also have withdrawn Chedraui, Femsa and Televisa.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, , , , , , , , , , , ,

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