Your Mexican Portfolio
By Héctor Morales Ortiz July 18, 2008 San Miguel de Allende

Is it a good time to invest in Mexican pesos?

Editorial Note: It used to be said that when the US caught a cold, economically speaking, Mexico caught pneumonia. This article provides another perspective.

During the current US economic slowdown, it might be a good time to consider investing in the Mexican market as part of a diversified portfolio. The Mexican economy is well positioned to sustain itself. We estimate Mexico’s GDP growth will be around 3 percent in 2008, which is in line with Mexico’s average growth in recent years.

Mexico has not always enjoyed this sort of relative economic stability. Before 1995, the exchange rate was fixed and controlled by the Central Bank and Mexican government authorities, which created imbalances and distortions, causing enormous devaluations which wrought havoc on the economy. The peso transitioned from a fixed currency to a floating one in 1995, which significantly helped macroeconomic stability. Since the Mexican peso began to float in 1995, the currency has moved freely on the back of supply and demand, so we think that destructive currency devaluations are part of the past. We estimate the Mexican peso will remain stable.

Macroeconomic stability, healthy public finances, growing exports, tourism, an increase in remittances and higher oil prices have benefited significantly from the strength of the Mexican peso. In fact, it has been appreciating against the US dollar by roughly 3.77 percent since 2003.

Important investments are being made in Mexico. For instance, Foreign Direct Investment (FDI) continues to grow due to a more stable macroeconomic environment. Last year, Mexico received US$23.2 billion of FDI, more than any other Latin American country and the fourth largest amount globally behind China, Russia and Turkey.

Also, exports have been dynamic and growing significantly in recent years due to commercial policies that are among the most open in the world. Total exports represent 63.2 percent as a percentage of the Gross Domestic Product (GDP), as compared with 1995 when they represented only 17.5 percent.

Finally, consider that the actual rate of return in Mexico for a 28-day CETE (Certificado de la Tesoreria), which is backed by the Mexican government, is 7.75 percent, versus the rate of return for a three-month US treasury bill, which now is somewhere around 1.9 percent. The difference is something close to 4.8 percent, with inflation close to 4 percent in both currencies.


Hector Morales Ortiz is the manager of the brokerage department of Actinver-Lloyd in San Miguel. Contact him at hmoraleso@actinver.com.mx.