Disappointing GDP numbers and a stagnant economy. An unpopular president with an administration tainted by scandal. Highly anticipated energy sector reform that started out with a bang, then fizzled. And yet most investors consider Mexico to be one of the brightest spots in Latin America. Why?
Jim Carlen, portfolio manager Columbia Threadneedle Investments’ Columbia Emerging Markets Bond Strategy:
Every politician faces problems and Mexico’s Enrique Pena-Nieto is no exception. But despite the political noise, Mexico generally has its policies in order, said Jim Carlen, portfolio manager of Columbia Threadneedle Investments’ Columbia Emerging Markets Bond Strategy.
The country’s strong institutions and sound policies with respect to the budget, as well as Mexico’s proximity to the U.S. will help in dealing with the headwinds it is currently facing, notably its economic troubles.
Like most other emerging market nations, Mexico has had to contend with the fact “that though there’s been faster growth in the G-10 countries in the last couple of years, there’s also been less demand for exports from emerging markets,” Carlen said. The relatively tame domestic growth in emerging markets including Mexico and softer commodity prices are also headwinds to economic growth.
Mexico, though, is better positioned than other emerging market countries to come out strong, he said. Carlen also believes that energy sector reform will improve going forward and western oil companies will be offered better terms when bidding in Mexico.
“I would say that the first auction was a hiccup and Mexico will learn going forward,” Carlen said. “The world is also now awash in oil and that was an un unanticipated bump n the road for Mexico but long-term, the goal is definitely to get Western firms and their technology more involved in the Mexican oil sector and to make energy cheaper, and they will succeed in doing this.”
Jim Barrineau, Co-Head of Emerging Markets Debt Relative, Schroders Investment Management:
When growth slows in a country, the political noise immediately increases, but Jim Barrineau, co-head of emerging markets debt relative at Schroders Investment Management, is not worried about Mexican politics.
Nor does he have too many concerns about economic growth, which albeit slated to fall further in 2016, should still come through in a fairly sound position.