Brazil is on top of asset manager and retirement account lists in equity, equity options, futures contracts and fixed income because of the basis of its economic stability and strong natural resources. So while Brazil has brought equilibrium to its markets, Russia, India and China deal with inflation. But trading Brazil can also be worrisome due to inter-country trade relations with the U.S. being less-than-favorable.
Those issues raise an interesting question: What market doesn’t make the news but is hot, has been hot and continues to sizzle like fajitas-picante? Mexico.
News stories on Mexico cover drug war violence, immigration and tourism, but is that the end of the story? Washington – and therefore public discourse – has focused on the $100 billion in trade to China over the last year. What most don’t hear is that the U.S. has exported nearly $400 billion to Mexico during the same time period. Compare all BRIC countries with Mexico and Mexico tops them all collectively.
Mexico reached 4 percent annual GDP growth rate last year, helped by direct investments from the U.S. and China. On the day the U.S. Federal Reserve announced that it would maintain its low interest rate policy through 2014, the Mexican peso rose 0.6 percent, marking a 7 percent climb for the month of January. How many other markets can be traded as strongly in response to a U.S. Treasury policy announcement?
If Mexico were to equitize or make public its oil production industry as Brazil has, by publicly trading leading oil company Petroleos Mexicanos, also known as Pemex, for example, a major trade explosion in Mexico’s capital markets would quickly follow. Pemex is a Mexican state-owned company worth over $415 billion – that’s $100 billion in assets more than Brazil’s giant Petrobras.
Mexico worth more than Brazil and China long term? Mexico reaches higher ground four times that in trade over the entire BRIC countries. One of Mexico’s oil companies is four times the size in assets over Brazil’s all-star Petrobras. What’s more, Mexico's inflation is under 5 percent while Brazil, Russia, India and China all have inflation rates closer to 7 percent.
A reflection of U.S. involvement and stabilizing influence in Mexico can be seen in the Mexican stock market with more than 1,000 symbols, many of which are high value and liquid ADRs from the New York Stock Exchange and Nasdaq OMX.
Why not follow the money? Taking a look at the presence of Wall Street on La Reforma in Mexico City, where the Bolsa Mexicana de Valores (the Mexican Stock Exchange) is, you'll find BMV members such a Citigroup, JPMC, Credit Suisse, Barclays, Deutsche Bank, Merrill Lynch, HSBC, Scotia, ING and UBS. No small potatoes there.
The top players and astute institutional investors are solidly positioned in Mexico. They monitor and believe they can best forecast movement in the market by keeping an eye on U.S. and Chinese import/exports with Mexico. A closer eye is kept on the cash equity ADRs and the Mexican bond markets. Many investors tend to believe that Mexico is just undervalued and other emerging markets are overvalued. But one more thing to remember, the U.S./Mexico trade policy should provide Mexico with lots of energy to outlast the steam of the emerging markets chatter.
Perhaps we should start thinking about MBRICs?