Mexico’s Market Activity Bounces Back in 2017

Mexico’s currency fell to record lows in November 2016 following the election of President Trump. Fears that foreign investment in Mexico would reach a standstill caused a mass sell of the Mexican peso. However, contrary to these fears, the currency has seen as resurgence, with monetary policy and business conditions pushing it to its highest level in over a year. Other areas of Mexico’s economy are similarly seeing positive growth, the country being one of the strongest-performing markets in 2017, with the MSCI Mexico Share Price Index soaring by 30.2% year-to-date.

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Up until the second quarter of 2017 Mexico saw 16 straight quarters of economic growth, with exports alone valuing $198 billion. In the first six months of 2017 the export industry in Mexico increased 10.4% year on year according to Mexico’s National Institute of Statistics and Geography. Mexico’s number one export sector is the automotive industry, representing 76.8% of all exports to the US, and it saw a leap of 9.8%. It was estimated for the June quarter that the country would see an economic increase of 0.2% which they met three-fold, up 0.6%. Having created a record number of new jobs much of this rise is due to performance in the services sector which, although not as substantial as the 3.7% increase of the first quarter, was still up 3.2% year-on-year in the second quarter.

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However, not all investment news is positive for Mexico following President Trump’s indication that the North American Free Trade Agreement (Nafta) trade negotiations could turn sour. On the 23rd of August the iShares MSCI Mexico Capped exchange-traded fund dropped by 0.5%. Mexican stocks also took a hit, with Cemex down by 0.3%, and America Movil falling 0.8%. Kansas City Southern, which is exposed to Mexican trade via its railroad network, saw its shares plummet by 2.4%. Wal-Mart de Mexico and Grupo Televisa, however, rallied up 1.4% and 0.6% respectively.

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Despite these slips in stock values Mexico’s economy has remained resilient in 2017, amid fears that political changes could have negative impacts on the country. In the second quarter of this year GDP was up 0.6%, slightly lower than the 0.7% growth of the first quarter, but a rise of 1.8% compared with the same period of 2016. While these progressions bode well for Mexico’s economy, uncertainty concerning the renegotiation of Nafta and the effects it will have on the second-largest economy in Latin America still exists.

(Please note: James O’Leary does not currently hold a position in Kansas City Southern, Wal-Mart de Mexico, or Grupo Tevevisa. Henry James International does not currently own a position in Kansas City Southern. Wal-Mart de Mexico, or Grupo Tevevisa.

Please note: James O’Leary currently holds a position in CEMEX and American Movil. Henry James International currently owns a position in CEMEX and American Movil).

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