At first thought, Mexico’s poor performance this year might seem quite surprising given that the country is doing all the right things, passing landmark reforms to open up its energy and telecommunications sectors to encourage competition and foreign investors. Quite a few market watchers are optimistic in their outlook for Mexico, among them is Stanislava Pravdova-Nielsen, Emerging Markets Analyst at Danske Bank in Copenhagen.
“If we should pick up an economy in Latin America, which has the most balanced and solid outlook, that’s definitely the Mexican economy… The Mexican government just moved forward with some quite ambitious reform programs, which we view as a very positive move, which will increase the foreign direct investment in the areas previously restricted to foreign ownership.”
However, quite a few factors are dejecting this optimistic picture. New antitrust regulations have hurt billionaire Carlos Slim's mobile telecom América Móvil, which makes up 15 percent of the IPC and is its largest component. New junk-food and soda taxes, aimed at boosting revenue and reducing obesity, have led to a decline in consumer-staple stocks. The sweeping energy reform, aimed at ending state-owned Pemex's 75-year monopoly on oil production, is not expected to generate much investment until its details are worked out. Also, initial investments may not appear until 2016.
All in all, economic growth in Mexico is stagnant. In the most recent news, the government just lowered its growth forecast for 2015 to 3.7 percent, down from 4.7 percent in April. Stanislava thinks the 3.7 percent scenario is still quite ambitious.
“Given the last data and Q1 and Q2 GDP numbers, everything points to that we will most likely have a growth below 3 percent,” Stanislava Pravdova-Nielsen said.
Some analysts say Mexico has not performed well because this year is about the details and implementation of the reforms. But that seems a minor argument for investors, or simply what is good for the economy is not necessarily good for stocks.