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In Mexico, It Really Is the Economy, Stupid

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Equity investors have bid up the value of Mexican stocks by 20% since last July. This matches the gain for the S&P and leaves broader emerging markets in the dust.

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Pena Nieto is also quietly rethinking the madness of getting tens of thousands of Mexicans killed in America's hopeless drug war. He has significantly pared back US law enforcement's access to Mexico, presumably one of those subjects he and Obama agreed not to air at their post-summit press conference.

There is one tactical dilemma attached to buying a little Mexico: It is hard to invest in the country writ large without getting exposure to zillionaire Slim's besieged America Movil (NASDAQ:AMOV), the largest Mexican company by far with a US ADR listing. The $3 billion iShares MSCI fund is pretty much the only game in town for Mexican ETFs, and America Movil represents 18% of its underlying shareholdings.

The fund was in fact soaring ahead of the S&P until early February, when analysts began to take seriously Pena Nieto's threat to trust-bust America Movil, which controls 70% of the Mexico's cellular market and 80% in fixed-line. The president duly laid out his plan in early March and it was passed by the Mexican senate a few days ago.

That is all good policy for Mexico – the Slim monopoly costs consumers and businesses $25 billion a year in gouged prices, according to the Organization for Economic Cooperation and Development – but of course bad for America Movil's bottom line. The shares have lost 15% since Feb. 5, and the broader Mexican market has treaded water since then.

However, it looks like the bad news might be priced into America Movil at this point. The stock bottomed out in mid-March and has limped back a bit. Otherwise investors could bet directly on other Mexican companies traded on US exchanges. The two most solid lately have been cement maker Cemex (NYSE:CX), which between the upturn in US housing and the Pena Nieto bounce has nearly doubled since last July, and top domestically-owned bank Grupo Financiero Banorte (OTCMKTS:GBOOY), which has gained 47% over the past 10 months. One international company with heavy Mexico exposure is Spanish bank Banco Bilbao Vizcaya Argentaria (NYSE:BBVA). Its shares have gained 38% during the young Pena Nieto era.
No positions in stocks mentioned.

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