beyondbrics.com
You have to read to the end of a JPMorgan report published this week to find out what the bank thinks are the most promising investment opportunities in Mexico over the coming months and years. But when you get there, it makes a lot of sense.
The bottom line (literally, in this case) of the report is that investors should look to invest in new stock-market listings and non-dominant companies operating in areas that the new government wants to make more competitive.
In Mexico, that undoubtedly means the energy sector, where the four-month-old administration of Enrique Peña Nieto, president for the centrist Institutional Revolutionary Party (PRI), has promised to create a bigger role for the private sector alongside, or together with, Pemex, the state oil monopoly.
But it also means sectors such as telecommunications, where the companies controlled by Carlos Slim, the world’s richest man, have long dominated but where the government is trying to introduce more competition and appears determined to attract foreign companies.
Follow that line of thinking and other potentially promising sectors currently dominated by just one or two companies that could see more competition in the coming years include broadcasting, brewing and buildings supplies. The government’s plan to ramp up spending on infrastructure could also provide opportunities for companies and investors.
Source: MSCI , JPMorgan Asset Management.
But why not just invest in the index and sit back to watch your money grow? First, argues JPMorgan, because Mexico’s MSCI index is not nearly as diverse as, say, that of Brazil. The country’s banking sector, which is mainly in foreign hands, is underweighted (see chart above). As for the energy, utilities and healthcare sectors, there is no representation at all.
Another reason is valuation. While emerging markets are trading at a discount to long-run averages, Mexico’s forward price-to-earnings ratio is at its highest level in two decades.
“An improving outlook does not yet justify these multiples,” concludes the report. Investors take note.
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