HIGHLIGHTS
In 2009, Mexico's GDP dropped by 7%, which was among the worst performances in the world and underscored its dependence on the U.S. consumer. The country was also afflicted by high levels of drug and other criminal violence, declining oil production, an ineffective and often corrupt regulatory system and a serious fiscal situation.
While growth is expected to be modest in the next couple of years, the country's long-term economic, social and political fundamentals are strong enough to justify a bullish long-term investment perspective for Mexico.
Despite its overdependence on the United States, and strong competition from China and other developing countries, Mexico's manufacturing sector is becoming increasingly competitive and is beginning to diversify its export markets. Much needed new investments in the oil industry will eventually allow it to stabilize sagging production, while the mining industry is in the initial phase of developing its high growth potential.
The absence of political, ethnic and religious conflicts, an improving educational and healthcare system, growing revenues from tourism, and investments to improve the infrastructure will all be supportive of economic growth. The overwhelming security and geopolitical interests of the U.S. will also ensure that Mexico's powerful neighbour will provide a backstop in case of need.
For commodity bulls, Mexico is one of the most promising areas to invest. Oil service companies should benefit from a renewed wave in exploration investments, while mining companies are well placed to profit from both increased global demand for commodities as well as a relatively investor-friendly regulatory environment. Further, the broader Mexican index is made up of solid companies, which should outperform most developed-world stock markets.
Pierre Fournier, Geopolitical Analyst
