Although the weakening US dollar has led to a corresponding drop in the value of the Mexican peso, ...
Although the weakening US dollar has led to a corresponding drop in the value of the Mexican peso, the Mexican Bolsa Index has managed to add just over 88 points year to date, a modest percentage increase of 1.39%.
However, general company performance has been patchy during 2002 with 15 companies on the Bolsa out of 36 posting negative returns over the year to date.
Chief among the poor performers was Grupo Iusacell, a mobile telecommunications company which has fallen 53% year to date. This was followed by Empresas ICA, an engineering and construction company, which has dropped nearly 39% since the start of the year.
Top performer on the Bolsa since January is Savia, which operates agrotechnology, financial services and packaging business interests and has delivered share price growth of 152%.
Second best performer is Industrias Penoles, a mining company, with a 114% gain in the year to date.
According to Shahreza Yusos, emerging markets fund manager at Aberdeen, one area of concern for the Mexican economy is the maquiladora sector.
Maquiladoras are zones on the Mexican-US border where corporations enjoy low tax regimes and labour costs are low.
'This area has been slowing down significantly,' he says. 'One possible contributor to the slowdown is the entrance of China to the World Trade Organisation. China is set to compete with Mexico on labour costs and tax breaks to attract large corporations. This question has still to be answered.'
Yusos cites the case of Canon as an example, the Japanese electronics company that recently moved operations from Mexico to China. 'Some companies, though, will still see an advantage in being close to the US,' he says.
Another issue Yusos highlights is the fact that for the first time in many years, the country has a president who does not belong to the Institutional Revolutionary Party which had governed Mexico for the past 73 years. This has created a political stalemate.
Programs such as the privatisation of Pemex, the state oil company, are being held up in part because President Vicente Fox's party does not control the Mexican congress.
In contrast to Yusos's cautionary stance, Jonathan Asante, head of emerging markets at Framlington, says the group moved from an underweight position to an overweight position and Asante says he is looking to increase that to around 11% or 12%. The funds were diverted from cash holdings and brings Framlington's emerging Markets unit trust up to a 9% holding in Mexico.
His confidence is explained by two factors, he adds. 'As the Mexican economy is tied so closely with the US economy and the dollar has weakened, so has the peso,' he says. 'This has made the peso relatively cheap. Risk aversion is another reason and I am banking on a mild recovery in the US.'
Emerging markets tend to do badly when the US is underperforming, he added, so investing in Mexico now will be profitable when and if investor confidence returns.
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Peso looking relatively cheap.
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