Investors looking to exploit a country determined to revolutionise an economy should look towards Mexico.
That’s because there are massive opportunities but only for those who act decisively and cleverly to take advantage of the upcoming potential of the country.
Like Japan, Mexico is undergoing serious political and economic change but, unlike the Asia Pacific country, the sheer scale of change needed is putting off investors.
Indeed, while Japan’s stock market has soared by 44% since November, Mexico’s has risen by just 8% in the same period as the a nation faces very different challenges.
Analyst Dan Morris at JP Morgan Asset Management believes the prospects for Mexico’s economy are the best they have been for ‘years’.
Revolutionary president
He said: “The challenges facing the two countries are obviously quite different and the country’s equity market is in need of structural change too.
“The market capitalisation of the MSCI index is about the same, in GDP terms, as it is for Brazil but nowhere as diverse. The future for the country’s economy is brighter than it has been for years.”
Mr Morris adds that potential investors should avoid tracking Mexico’s index is this is likely to lead to disappointment.
Instead, he says investors should look to firms launching on the stock market and to those who successfully enter monopolised state sectors.
The swift turnaround of Mexico’s economy is all the more surprising since the election of the president last November, Enrique Peña Nieto, which led many to believe that the country would return to its political past.
That’s because Mr Nieto as leader of the PRI party which has ruled the country for more than 70 years but instead of returning to its protectionist policies, the president appears to be opening up the economy and creating competition.
Pemax tension
He has even promised to open up to investment in Mexico’s state-controlled oil industry.
The president has also vowed to radically improve the country’s education system and address the issue of the MSCI index not having enough members. There are four sectors which have no listings at all – in energy, information technology, utilities and healthcare.
The lack of energy representatives is surprising since Mexico is a leading oil producer and the president has floated the idea of part-privatising national oil firm Pemex.
Mexico’s banks are also reluctant to lend, much like European banks, and private sector credit is likely to boom in the coming years.
Even this prospect has seen the value of Mexico’s banks increase and it looks likely that the first sectors to be privatised will be the country’s media and telecommunications.
Mr Morris also flags up the likelihood that any increased competition will almost inevitably lead to lower returns for this firms already in the market.
