Another year of growth, por favor

Posted on: March 9, 2011 in: Uncategorized with 0 comments

The bloody drug war in Mexico clouds an otherwise growing economy. For the 1-page PDF, click here. Mexican GDP was up 5.5% in 2010 and is expected strong this year. Many emerging markets are caught between high food and energy inflation and the threat of higher interest rates. Not Mexico. Its inflation rate, at 3.8%, is unchanged from mid-2010 when the commodity rally started. Early action by the central bank curbed demand and hurt GDP by 8% in 2009. But as a result, the country has better growth prospects now than its high-inflation neighbors. Government austerity after the 1994 Peso crisis cut national deficits and debt, leaving it well-positioned when the 2008 crisis hit.
Señor Mulroney’s legacy has also helped. Car exports, at 500k/yr, are above pre-2008 levels. Global firms like VW and Nissan are expanding operations to NAFTAccess the US market.
The iShares Mexico ETF (EWW), with 46 names, is heavy on domestic consumption. Cellphones, Walmart, Coca-Cola, and TV are 55% of the ETF. Unlike the Brazil ETF, EWW has little commodity exposure. Groupo Mexico, a big copper miner, is 7% of EWW. Oil major, PEMEX, is a cash-cow, but all state-owned.
With the emerging market rally maturing, we are becoming more selective, looking for single markets like Mexico that offer better potential returns.

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