Mexico gets a new president on Saturday, Enrique Pena Nieto of the long-standing Institutional Revolutionary Party (or PRI). He comes to power with an economy that’s growing faster than its Latin American-rival Brazil for the first time in the past five years or so—and with markets that look highly appealing to investors.
The economy is expected to have a growth rate of 3.8% in 2012 vs. 1.5% for Brazil and 2.2% for the U.S, according to Bloomberg. And that recent track record has been drawing in investors like Bill Gross of PIMCO. (PIMCO’s Emerging Local Bond Fund, PELBX, has about $14 billion in assets, of which 19% are Mexican and 14% are Brazilian based.)
“Following the results of the election, it seems more likely that some of the needed structural reforms (to smooth labour market rigidities, foster formal employment and private-sector deregulation) could be achieved in the coming six-year presidential term, leading to faster economic growth,” wrote analysts at Canada’s Scotiabank in a recent report.
During the final week of November, for instance, EPFR Global-tracked equity funds had inflows of nearly $14.9 billion, with Mexico-themed equity funds experiencing six-week highs, the research group reported Friday.
Global investors now own more than 50% of Mexico’s $140-billion-plus fixed-rate peso bond market, Bloomberg said in a report on Friday. That’s the highest proportion since February 2000. This has helped push returns on peso debt to close to 20% in dollars this year, which is about eight times the uptick in local-currency Brazilian bonds.
Yields on Mexican-peso debt due in 2024 have dropped nearly 230 basis points, or more than 2%, in the six years since outgoing President Felipe Calderon (of the young National Action Party, or PAN) came to power, to roughly 5.6%. They should move down to about 5%, Bloomberg says, as expected reforms move through the legislature.
Mexico’s stock market did well under Calderon. It was up 12.4% in local currency terms year to date on Nov. 21 and 20% in U.S. dollars for the same period, according to The Economist. In contrast, Brazil’s performance fell close to 1% in the local currency and nearly 12% in U.S. dollars.
Rising income levels in Mexico and among Mexican ex-patriots living in the U.S. and elsewhere are prompting some investment firms, and wealth managers, to find new ways of winning their business.
Early on Friday, Market Vectors, the fifth-largest provider of exchange-traded products in the U.S. and the eighth-largest provider of ETPs globally, said it added six NYSE Arca-traded ETFs available to qualified Mexican investors. Deutsche Securities Casa de Bolsa in Mexico will act as local sponsor and filing agent for the depositary receipts of the Market Vectors High-Yield Municipal Index ETF (HYD) and five other funds.
The Mexico Equity & Income Fund (XMXEX, MXE, MXEPR), a closed-end fund offered through U.S. Bancorp Fund Services, is up about 20% over the past six months. The iShares MSCI Mexico ETF (EWW) has done nearly as well, while the iShares MSCI Brazil ETF (EWZ) is down about 2% over the same period.