lunes, 14 de abril de 2014

What's caused Mexican stock prices to pick up?

Here's a very interesting graph from CNNMoney, courtesy of EPFR Global. For the first week this year, the end of the first quarter saw investors put money into emerging market stock funds. Do you think it's coincidental that Mexico's stock index, the IPC, picked up 1.8% in dollars between March 28 and April 4 (+1.4% in pesos)? In that same week, the Dow rose 0.6%, the S&P 500, 0.4%, and the Nasdaq fell 0.7%. That the IPC outperformed the US indices has been a very rare occurrence this year.


jueves, 10 de abril de 2014

Security in Mexico...

INEGI's third security survey doesn't make for happy reading. Judging by its results, Mexicans don't feel very safe. Here are some of the salient findings:

--Nearly 3 of every 4 Mexicans surveyed (72.4%) feel that it's not safe to live in their city.
--Almost 2/3 of people surveyed (64.9%) think the security situation will be equally bad or worse a year from now.
--Two out of every three people surveyed have seen or heard or a robbery in their neighborhood in the last three months.
--Vandalism is a fact of life: 56.5% of respondents reported seeing or hearing of acts of vandalism in their homes or businesses in the last three months.
--Two-fifths of respondents saw or heard of the sale or use of drugs in their neighborhood in the last three months.
--Gangs are another unpleasant reality for many Mexicans: a third of respondents reported seeing or hearing about gangs in their neighborhood in the last three months.
--A quarter reported gunshots in their neighborhoods in the last three months.
--People have changed their habits: 65% said they've changed their habits in terms of carrying valuable objects. Strolling around their home after 8:00 PM is something that half of respondents have re-thought. Nearly half (47.6%) have re-thought letting their underage children go outside to play.
--Seven out of ten people surveyed don't think much of the efficacy of state and local police: 28.1% said the police were not effective (28.1%) while 42.1% thought they were a "little bit effective".

miércoles, 2 de abril de 2014

Unemployment in the US...

The US unemployment rate is down to 6.7%. That's the good news. The bad news is that the unemployment rate in the US would be 12.2% if the labor force participation rate were kept steady at 66%. No wonder Fed Chair Yellen is going to such lengths to emphasize that investors shouldn't expect the Fed to start increasing the Fed Funds rate when the unemployment rate hits 6.5%.

lunes, 24 de marzo de 2014

Trade with Mexico's Asian TPP partners...

In 1993, 1.7% of Mexico's exports went to its Asian TPP partners. In 2013, 1.1% of Mexican exports went to those countries. In 1993, 78% of Mexico's exports to its Asian TPP partners went to Japan; in 2013, that percentage was 53%.

In 1993, 7.1% of Mexico's imports came from its Asian TPP partners. In 2013, their share was 6.9%. In 1993, 84% of Mexico's imports from its Asian TPP partners came from Japan; in 2013, it was 65%.

There's lots of room for trade to grow. 

lunes, 17 de marzo de 2014

Mexico's Asian TPP partners...

Between 1999 and 2013, just 2.7% of foreign direct investment (FDI) in Mexico came from Japan, Malaysia, Brunei, Singapore, Vietnam, Australia and New Zealand -- the Asian TPP cohort. More than four-fifths (82%) of that 2.7% came from Japan and over half of the Japanese FDI was made in 2012 and 2013.

sábado, 1 de marzo de 2014

Mexico's record 2013 capital account surplus: good news and bad news...

Mexico's 2013 capital account surplus of US$58.6 billion was the largest in the country's history. That's good news. So is the fact that portfolio investment played a less significant part in it and that foreign direct investment (FDI) posted an historical high.

There's bad news too. Mexico’s net foreign debt climbed; Mexican deposits in foreign bank accounts soared; and the proportion of the capital account surplus going into reserves declined while that required to finance the current account deficit rose.

Let’s look at the good news. In each of the last four years (2010 – 2013), Mexico’s capital account surplus has posted a new historical high. Between 2010 and 2012, portfolio investment drove the surplus: in 2010 and 2011, portfolio investment equaled half of the capital account surplus; in 2012, portfolio investment exceeded the capital account surplus. In 2013, the 62.9% fall in portfolio investment inflows (to US$$21.0 billion) and the doubling of FDI (to US$35.2 billion) reduced portfolio investment’s contribution to the capital account surplus to 35.9%.

The surge in FDI was thanks to AB InBev’s purchase of the 50% of Grupo Modelo shares it didn’t yet own. New investments constituted half of last year’s FDI. Increases in subsidiaries’ debt with their parent companies accounted for a fifth of FDI in 2013. Reinvested profits, which appear as an outflow in the current account, accounted for 29.4%. 

Now for the bad news... First, there's how the capital account surplus was distributed between reserves and financing the current account deficit. Last year, reserves rose US$13.0 billion, their smallest increase since 2009 and an increase that was US$8.0 billion smaller than in 2012. Financing the US$22.3 billion current account deficit, the largest since 1994, required US$7.6 billion more than in 2012.

The near tripling of Mexico’s net debt with the exterior is another piece of unwelcome news. Mexico’s net foreign debt increased US$41.9 billion last year, second only to 2010’s US$45.4 billion increase. To put the figures in perspective, the increase in 1995 when the US Treasury arranged the famous loan to Mexico, net foreign debt rose US$26.5 billion.

Mexico's net foreign debt soared last year, just as in 2010, because of jump in private sector borrowing. Private commercial banks took on an additional US$15.1 billion of net debt in 2013. In 2012, they repaid US$3.2 billion. In 2010, they borrowed US$29.3 billion. The net debt of private sector firms increased US$18.1 billion last year, more than double 2012’s increase, which was an historical high. In 2010, the non-banking private sector borrowed US$8.4 billion. In 1995, the private sector –- banks and non-banks – repaid US$1.3 billion.

In contrast, the public sector (development banks plus the non-banking public sector) took on just US$8.6 billion in net debt in 2013, 1.8% less than in 2012. In 1995, the public sector took on US$14.5 billion in net debt and the Banco de México, another US$13.3 billion.

Another piece of bad news is the jump in assets held abroad, which rose US$39.5 billion in 2013, 15.9% more than in 2012. There were significant changes in their composition: Mexican FDI plunged while Mexican deposits in foreign bank accounts climbed.

Last year, Mexican FDI totaled US$10.0 billion, a bit more than half of its 2012 level. While well below its 2010-2012 annual average of US$17.0 billion, it was still above its US$6.3 billion annual average in 2005-2009. 

The big movements in the assets held abroad account came from the growth of Mexican deposits in foreign bank accounts. Those deposits soared US$27.4 billion last year, an historical record. In 2012, they rose US$3.1 billion. The tremendous jump in deposits in foreign bank account may well be explained, in part, by the sale of Grupo Modelo: Mexican shareholders may have chosen to place the proceeds of the sale in foreign bank accounts.

The valuation adjustment to reserves bears mention because of its size. Until 2013, the largest valuation adjustment to reserves ever made was in 2011. It reduced the value of reserves by US$441 million. In 2013, the valuation adjustment added US$4.6 billion to reserves. 

jueves, 27 de febrero de 2014

Why Mexico's current account deficit is climbing...

In Mexico, the trade account deficit typically drives the growth of the current account deficit. That has not been the case for the last three years, years in which the current account deficit grew significantly.  Climbing factor services payments (principally interest payments and remitted or reinvested profits) explain the jump in the current account deficit. 

In 2013, the deficit in the factor services account was US$41.4 billion, 35.0% higher than in 2012. Between 2008 and 2010, outflows for factor service payments averaged US$15.8 billion annually. Between 2011 and 2013, the annual average jumped to US$24.8 billion. 

The upward trajectory of the current account deficit over the last three years serves as a reminder of how easily a jump in factor service payments, helped along by a reduction in oil export revenues and remittances, can transform a minimal current account deficit into a not so minimal one. 

While we expect Mexico’s current account deficit to rise from 1.8% of GDP last year to 2.2% this year and 2.5% next, foreign direct investment (FDI) should come close to covering the entire current account deficit – provided that the reforms passed last year are implemented in the ways we hope. Both this year and next, the projected deficit remains below the 3% of GDP that is the upper limit of what is considered to be a safe level for developing countries.