Barron’s Recommends Investing in Mexico

Although Mexican stocks have experienced a serious upswing in 2012, thanks in large part to Mexico’s strong economy and low inflation rate, Barron’s reports that government bonds may offer investors an even better deal. In addition, the peso has remained steady for more than three years and government debt as a percentage of economic output is at less than half of what the U.S. is currently looking at. 

“Mexico is enjoying a manufacturing boom in part because wage inflation in China has reduced its cost advantages for U.S. buyers,” writes Barron’s. “The economy [in Mexico] is expected to expand by nearly four percent this year, versus just over two percent in the U.S. and even less in Brazil.”

Also of note, this September Moody’s announced that Mexico could be headed for an upgrade if incoming President Enrique Peña Nieto follows through on campaign promises to raise tax revenues and relax state control of the energy industry. The end result of all of this is that the MSCI Mexico stock index is up more than 20 percent so far this year, compared to a paltry 12 percent in the U.S. stock market.

Barron’s is particularly interested in Mexico’s government bonds, with five-year debt instruments recently yielding just over five percent, which is still outpacing inflation. Since inflation is showing no signs of rising, and in fact has been trending lower recently, investors can expect a realistic yield of at least .7 percent this year.

While that might not sound too impressive at first glance, keep in mind that comparable positive real yield bonds are tough to find these days anywhere in the world. In the United States, for example, five-year treasury bonds now yield less than their counterpart in Mexico. 

The positive moves in Mexico’s market also reflect the growing popularity of Mexico real estate, and investors can now purchase Mexican government bonds directly from brokers in the US, such as Charles Schwab. According to Barron’s, they are an excellent addition to any well-diversified bond portfolio.

High Speed Train for Yucatan

There was a time when people in Mexico traveled up and down the country by train… that was before the Mexican Revolution started back in 1910! Well, a whole century later it seems that trains are coming back to a city near to you.

Mexico’s new president Enrique Peña Nieto has started his Administration announcing ambitious projects that look quite interesting, such as a reform of the energy sector, state-owned oil giant Pemex included; a much-needed reform to the teachers union; a much-touted Pact for Mexico, which is an agreement with every political party in the country to push the country forward with a shared agenda; and the development of the train industry once again. 

It is well known that Mexico has the same amount of railways’ kilometers than it had when Porfirio Diaz was president. Mr. Diaz was the president ousted by the Mexican Revolution in 1910. 

After the chaos brought by the Revolution, trains started losing some of its appeal. Then the airplane become a most viable option for a country as big as Mexico, and the development of a highway network sent the last passenger trains still working in the country to the category of tourist attractions, such as the Tequila Express in Guadalajara and the Chepe train that crosses the spectacular mountains of Chihuahua. 

But the advantages of trains are still there, as Europe shows every day to anybody interested. They are a greener and safer option than both, airplanes and cars. 

So, when President Peña Nieto announced the construction of a high-speed train line connectingMexico City with Queretaro and another one crossing the Yucatan Peninsula and connectingMerida with the Riviera Maya, it just made a lot of sense.  For more info, www.igoyucatan.com

Why Mexico Is The World's Biggest Exporter Of Flat-Screen TVs

Most of the news we hear about Mexico these days is about drug-related violence. But it turns out there's another, brighter story there: The country's economy has been growing at a solid pace for the past couple years, driven in large part by solid exports.

Among other things, Mexico is the world's largest exporter of flat-screen TVs. There are a lot of factories just south of the U.S. border, filled with workers putting together televisions. The individual parts come from Asia, but the final assembly is done in Mexico.

"One of the things that's produced in Mexico is the molded plastic covers that go around the TVs," said Paul Gagnon, director of global TV research for the company DisplaySearch.

A big chunk of Mexico's export prowess comes from the North American Free Trade Agreement. Under NAFTA, TVs assembled in Mexico can enter the United States for free. TVs imported from China or Asia typically come with a tariff.

"A TV set barely makes 5 percent margin on a good day, most are pretty much break even," Gagnon said. "If you are going to have to pay a 3 or 4 or 5 percent tariff then that's make or break. Small things like import tariffs make a big difference."

Another advantage for Mexico: location. Even in this global economy where almost anything can be shipped almost anywhere, Mexico is right next to the U.S. — the largest economy on earth. And that still matters.

"Mexico is by far the largest supplier of fruits and vegetables to the U.S.," said economist Louis de la Calle, president of Hill and Kowlton Strategies, Latin America. "We represent 45 percent of the U.S. tomato market,"

De la Calle said that drug violence has made Mexico less attractive for foreign companies. But the country's share of the U.S. market is growing. According to some projections, in a few years, the U.S. will buy more stuff from Mexico than from China.