Thursday, 06 February 2014 00:10
BY TOMAS SARMIENTO
AND CHRISTINE MURRAY
Reuters
MEXICO CITY – Mexico became only the second country in Latin America
to earn a coveted “A” grade sovereign rating as Moody’s upgraded it on
Wednesday, citing a raft of economic reforms that President Enrique Peña
Nieto has pushed through Congress.
Mexico’s peso and leading share index both turned positive after the
upgrade, which should help lower the country’s borrowing costs.
Moody’s upgraded Mexico’s sovereign rating to A3 from Baa1 with a
stable outlook. Until now, Chile was the only country in Latin America
with an A rating.
Moody’s said it expects the economic reforms approved in Mexico last
year “will strengthen the country’s potential growth prospects and
fiscal fundamentals.”
Mauro Leos, the firm’s senior credit analyst, told Reuters the rating
agency sees no further significant changes to Mexico’s sovereign rating
for two to three years following the upgrade.
Fellow ratings agencies Standard y Poor’s and Fitch Ratings are expected to eventually follow suit and upgrade Mexico.
“Confidence in Mexico in the world is growing,” President Enrique
Peña Nieto said after the upgrade. He is hoping that sweeping overhauls
to the telecoms and energy sectors in Mexico will help boost competition
and economic growth — which has long lagged that of regional peers.
“I think it’s very well deserved and to a large extent reflects the
recognition of the major structural reform drive that was undertaken by
the authorities last year,” said Alberto Ramos, senior Latin America
economist at Goldman Sachs in New York.
The upgrade comes after Standard y Poor’s raised its own sovereign
long-term foreign currency credit rating for Mexico by one notch to
BBB-plus in December. However, that upgrade only brought SyP in line
with both Moody’s and Fitch at the time.
Brazil, by comparison, has the second-lowest investment grade level according to the three ratings agencies.
The upgrade could not come at a better time for Mexico, which has
suffered alongside other emerging nations as investor jitters over a
winding down of U.S. monetary stimulus and a deceleration of the Chinese
economy inspired a massive sell-off in emerging market assets.
The peso is down nearly 2 percent this year, while the IPC stock index is down more than 6 percent in 2014.
Benito Berber, a senior Latin America strategist at Nomura Securities
in New York, said the upgrade would help Mexico distinguish itself from
other emerging markets, and that it would positively affect prices of
Mexican bonds and its peso.
However, he also delivered a word of warning.
“This is a stamp of approval but the reforms have to deliver growth
and they have to deliver investment,” he said. “A rating does not make
you more productive, nor make Mexico more important as a country.”
“It will remain a country that is invited to the G-20 and that’s it. I
don’t think it will be invited to the G-7,” he added, noting that he
now expected “SyP and Fitch to upgrade Mexico in the last quarter of the
year or first quarter of 2015.”
As of now, both Standard y Poor’s and Fitch rate Mexico just a notch
below the top grade of “A,” where Moody’s has Mexico now. When Standard y
Poor’s upgraded Mexico to BBB-plus in December, it matched Fitch’s
rating.
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