Mexico's Stock Market Surges, Outpacing US Markets

Strategic Insights -

Mexico's main stock market index, the IPC (Bolsa), has risen 14.4 per cent in dollar terms this year, surpassing US markets, which are roughly flat. This unexpected gain has sparked questions on the reasons behind Mexico's performance, particularly given its economic dependence on the United States. The Mexican economy is closely tied to the US, which has seen a quickening pace of recovery since last spring, driving up trade data and fueling growth.

The Mexican equities have benefited from the underlying strength of the US economy, coupled with the flow of funds away from Brazil and Argentina, last year's regional winners. According to Citigroup's projections, the IPC could reach 12,000 by the end of the year, a 15 per cent increase from current levels. This growth is attributed to the positive impact of US manufacturing recovery on Mexico's economy.

Key Takeaways:

  • Mexico's IPC (Bolsa) has gained 14.4 per cent in dollar terms this year, outpacing the US markets.
  • The Mexican economy's performance is closely tied to the US, with a quickening pace of recovery driving up trade data and fueling growth.
  • Citigroup forecast suggests the IPC could reach 12,000 by the end of the year, a 15 per cent increase from current levels.
  • The positive impact of US manufacturing recovery on Mexico's economy has contributed to this growth.
  • Mexico's relative recent underperformance and oversold state of the market in December led to a rebound in early this year.
  • Regular portfolio reallocation and a rotation out of Brazil into Mexico have boosted the country's equities.
  • Mexico's strength as a defensive option has worked in its favour, with investors seeing it as a safer emerging market.
  • The country's cheap cost of capital, at 190 basis points over US Treasuries, has been beneficial for growth.
  • Domestic demand is heating up as the economy improves, with companies like Cemex experiencing growth.
  • Analysts believe Mexico will continue to outperform regional markets, with concerns about Brazil's growth and Mexican companies' prospects.

Statistics:

  • Mexico's IPC (Bolsa) has gained 14.4 per cent in dollar terms this year.
  • Citigroup forecasts the IPC could reach 12,000 by the end of the year.
  • The US economy's pace of recovery has quickened since last spring.
  • Trade data showed Mexico's exports rose 20.4 per cent in March compared to the previous year.
  • Mexico's gross domestic product growth is projected to be 3.1 per cent this year.
  • Mexico's long-term debt is priced at 190 basis points over US Treasuries.
  • Brazil's long-term debt has a 700-basis point spread over Treasuries.

Sources:

  • ELIZABETH WINE, "Mexico's main stockmarket benchmark, the IPC, also known as the Bolsa, has gained 14.4 per cent in dollar terms so far this year, outpacing every big world market."
  • Citigroup's projection for Mexico's gross domestic product growth is 3.1 per cent this year.
  • Geoffrey Dennis, Latin American equity strategist at Citigroup.
  • Will Landers, manager of the Merrill Lynch Latin America fund.
  • Jose Costa Buck, analyst for the T Rowe Price Latin America Fund.