Fitch has finally downgraded Mexican debt. However, as always, there is good news with the bad, for they say that the outlook is now stable. In addition, Congress has finally approved the tax increase, which should result in an improvement in government revenues, although the decision was not sufficient to avoid the downgrade. S&P has still to give its verdict on the country’s outlook. Expectations are that they will avoid downgrade and, as Fitch did, maintain a stable outlook, but with a higher notch.”
Mexico – Monthly Allocation – December 2009
The economic outlook seems to be improving. Although still negative, indicators are above expectations. GDP dropped 6.2% in 3Q09, which compares to the market’s estimated drop of 6.8%. For 2010, investors expect a turn around, estimating a 3.1% growth. Much still remains based on an improvement in the USA. Approximately 27% of the country’s economy depends on its neighbor.
Inflation watched closely
Inflation has not been a concern up to now, continuing below the 4% level. However, expectations are that the beginning of the year will show it moving above this level, increasing concerns that the Central Bank will start moving basic rates up. Expectations are that the beginning of an upward trend in rates will only start in September 2010. Investors will be on the lookout for the Mexican’s Central Bank estimate, scheduled for release during the first week of December.
Other data investors are going to be paying a lot of attention to during the next couple of weeks are on the US, especially Black Friday sales that will give an indication of how good (or bad) Christmas sales will probably be. An improvement should indicate an increase in remittances to Mexico, improving the Mexican economy.
No real concern with the change to Central Bank
The change in the President of the Central Bank is no real concern. Although doing a good job, the leaving President was eternally in dispute with President Calderon. Replacing him is Mr. Carstens, who is the Secretary of Finance, and who has good international exposure. The question that arises is who is going to replace him as Finance Secretary.
December is the month with the highest sales, due to Christmas. Thus, we are basing our portfolio on the stocks of companies that will benefit from this. We are not recommending any shorts this month.
Outperforming the IPyC – Recommended BUY Portfolio (“LONG”)
Stock – Catalysts/Fundamentals
AMXL – excellent results from the launching of promotions for post paid subscribers
AXTEL – possible change in foreign shareholder legislation
CEMEX – should successfully place convertible bonds
FEMSAUBD – reducing due to uncertainties coming from rumors
GAP – December traffic should be positive
GEOB – trading at attractive valuations
GMEXICOB – defensive play on copper price increases
ICA – expectations that it will win the tenders for more public projects
Peñoles – precious metal price seasonal increase
Simec – better outlook on USA auto sales in 2010
Televisa – looking for a JV to participate in wireless spectrum auctions
URBI – should do well on Moody’s and S&P’s upgrade and on attractive valulations
WALMEXV – strongest month for retailers with 4Q representing 30% of sales.
Source: IXE Banif, 01.12.2009
Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, Banif, BMV Bolsa Mexicana de Valores, Cemex, Exchanges, ICA, IXE, Latin America, Market Analysis, Mexico, Rating, S&P Standard & Poor, Televisa, Walmex
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