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Mexico: Investment News Letter 14 March 2013

Mexican Peso Gains for Fifth Day on Export Outlook; Bonds Rally

Why you should be excited about Mexico

Group Of Investors Acquires Important Stake In Aeromexico

Mexico eyes telecoms revolution

The Mexican government on Monday announced a sweeping proposal to limit the reach of telecoms tycoon Carlos Slim and broadcasting giant Televisa as part of efforts to boost competition in Latin America’s second-biggest economy. The bill, which forms part of the most ambitious economic reform agenda in a generation, seeks to establish a powerful industry regulator armed with an array of tools to curb companies’ control of markets, while opening up space for new investors.

Bold reforms of president buoy Mexico

If every government has a defining moment, that of Mexico’s new administration may have come this month when authorities arrested the head of the teachers’ union and put her behind bars without bail.

Mexico, among the lagged to do business

The study Doing Business 2012 locates the country in the 53rd place of 183 countries. Among the states with the best regulations are Colima and Aguascalientes.

Beer, tomato and avocado are among the most exported

U.S. is the main destination of the Agrifood exports of Mexico, with 74.2% but they also arrive to new markets, such as the Japanese.

Mexico will remain tied to the U.S.

The country exported almost 80% of their goods and for 2030 is expected that the neighbor to the north will capture 70% of Mexican exports.

For Mexican Insurers, Solvency II Reforms are all about the Details

As the global insurance industry prepares for the implementation in 2014 of the new risk-based capital requirements, known as Solvency II, many discussions about how new regulations will be written have been taking place in both local and international forums. Among the countries preparing for Solvency II is Mexico, where recently its Congress passed a new law that essentially sets the scaffolding for implementing Solvency II and merges current laws for the country’s insurance business. The new law’s primary objective is to strengthen the procedures for reserves calculation and defines levels of capital requirement according to each company’s risk profile. In contrast to what the current law required, the new one allows for a more precise distinction between capital and reserve requirements for different business lines under Pillar I of Solvency II, for strengthening corporate governance under Pillar II, and for adding more transparency under Pillar III.

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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

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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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Mexican IPC Index ETF “iSHARES NAFTRAC” listed on Spain’s LATIBEX

BGI IShares listed it’s Mexican ETF (TRAC) NAFTRAC on the Spanish LATIBEX exchange on November 19th, 2009.

This is the first time a Mexican traded TRAC is listed abroad. It marks a significant recognition of the Mexican financial markets and in particular for BMV – Bolsa Mexicana de Valores (BMV) the Mexican Stock Exchange in it’s international expansion.

The NAFTRAC tracks the top 35 traded Mexican stocks according to the BMV IPC index. The TRAC was listed on April 16th, 2002 and was the first such instrument to be listed in Mexico and Latin America, and has become one of the most traded instruments in Mexico’s Stock Exchange.

Barclays Global Investors (BGI) Mexico, is underwriting and listing the TRAC on LATIBEX in Madrid, Spain.

Note: TRAC (Títulos Referenciados a Acciones) are the Mexican equivalent for ETF’s traded on the stock exchange and issued by BGI IShare Mexico

Note: BMV IPC tracks companies of global influence like WalMex, FEMSA (CocaCola), Telmex, Modelo, CEMEX, Bimbo, AMX, Bolsa and others with global operations and revenues. See latest performance of IPC here.

Source: BMV, 19.11.2009
Summarized translation by FiNETIK from BMV press release 19.11.2009

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