Investing In Mexico Today
Then last July Mexico changed course.
The PRI was re-elected under Enrique Pena Nieto, who was younger and more reformist than his predecessors. He was also more politically adept. Pena Nieto’s first act in office was to do a deal with the opposition parties so he could get legislation through Congress.
Since then he has had the teachers’ union head, accused of embezzling $200 million, arrested. He has gotten his party to agree to allow foreign investment in Pemex. And he has introduced legislation to allow foreign investment in telecoms, and if necessary break up Slim’s near monopoly.
Of course, Mexicans will scowl if you suggest they’re heading back to the days of Porfirio Diaz, because the PRI got to write all the history books and demonized him.
But that’s where Mexico seems to be going, which is good news for investors.
In fact, there are examples all over the world where breaking a logjam like Mexico’s went on to turbocharge growth.
India, which began reforms in the 1980s and accelerated them under Atal Bihari Vajpayee from 1998-2004, went from 0.3% per capita growth in the 1970s, to 3% in the 1980s, 4% in the 1990s and a full 6% since 2000.
Britain, as I remember well, also got a growth shot in the arm after Margaret Thatcher took over in 1979 and sorted out dead nationalized companies and other over-protected industries. Likewise, Chile went from 0.8% per capita growth in 1964-73 to 5.8% per capita growth in 1984-93 after reforms had taken place.
Since Mexico has had only 1% per capita growth in the last decade, that means there is quite a bit of long-term upside ahead. In fact, it may be a 100-year opportunity.
The short term picture looks pretty good, too. The Economist team of forecasters already puts Mexican growth at 3.7% in 2013 and 3.9% in 2014. Further, the Banco de Mexico has just cut interest rates from 4% to 3.5% (far too high for Ben Bernanke, of course) and that should help the economy, too.
Three Ways to Invest in Mexico
There are a number of ways to play Mexico, whose market currently trades on a 19 times P/E ratio, according to the Financial Times.
The iShares MSCI Capped Mexico Investible Market ETF (NYSE: EWW) has an ample market capitalization at $2.3 billion, a dividend yield of 1.3%, and an expense ratio of only 0.5%. However, being an index fund, 17% of its capitalization is Carlos Slim’s company, America Movil.
The Mexico Fund (NYSE: MXF) is a closed-end fund which pays a quarterly dividend at a rate of 10% of net assets – that has the effect of holding the share price fairly close to net asset value; it’s presently at a premium of 0.7%. Plus, it currently holds no America Movil.
Finally, one attractive Mexican company is Desarrolladora Homex S.a.b de CV ADR(NYSE: HXM), a Mexican homebuilder and prison-building company, which trades on a P/E of 6 times. With the Banco de Mexico’s interest rate cut, housing can be expected to flourish in 2013 and Homex should share in the improvement.
So don’t get caught up in what you’ve always believed about Mexico. The changes going on south of the border make for a great investment opportunity.