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Mexico Struggles Against US and Europe Troubles

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Mexican exports are weak, though its companies are having some success. Plus, next year's frontrunner floats oil sector privatization as the presidential race heats up.

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While Mexico continues its struggle against dependency on the United States and the large hit it is taking from the eurozone crisis, third quarter results from some of its biggest companies showed some promise.

Walmart de Mexico (WMT) saw profits rise 15% to $360 million, marking the highest increase of this year. Revenue was up 11% for the company that has been prodigious in opening up new stores, with 215 new sites opening their doors in Mexico this year alone with a further 43 in Central America. Another 145 are planned this year for Mexico alone. While customer traffic did slow, high sales have offset the capital that went into opening new stores leading to the strong figures.

The news comes despite August retail figures showing a 0.3% decline compared to the previous month. "Weakening consumer confidence, moderating job growth, and contained real wage gains are likely to keep consumer spending relatively subdued in the near term," Goldman Sachs economist Alberto Ramos told Reuters.

Brewer Modelo saw third-quarter net profit up 33% to $242 million, thanks primarily to the sharp fall in the value of the Mexican peso. The Corona maker saw domestic sales rise 9.6%, thanks to both a 3.7% rise in sales voume and a 5.7% rise in average price per unit. Telling of the country's reliance on the US market, export revenue declined 7.6%.

Next week, Coca-Cola bottling giant Femsa (KOF) is expected to post third-quarter profits of 25%, with strong sales up 14.7% over the period. However, high sugar and plastic prices will continue to hit profit margins.

It wasn't good news for all, however. The world's largest Spanish-language television producer Televisa saw third quarter profit down 6.8% to $147 million, compared to the same period last year, again thanks to foreign exchange rates. Revenue was up 8.1% thanks to paid-for television services. The company did see shares rise 4.2% yesterday on the news of higher sales.

The European crisis, meanwhile, continues to take its toll on the country's stocks. The IPC index fell 0.4% to 34,396 points on a volume of 239.4 million shares worth $366 million yesterday, with the Mexican peso falling 1.7% against the US dollar to 13.6890.

"This is a direct consequence of the weakening euro. Wherever the euro leads, there the peso goes," Federico Flores, a senior trader with local brokerage Invex, told the Wall Street Journal.

Mexico In Brief:

Unemployment Down as Rates Stay Unchanged
Joblessness in Mexico hit a five-month low last month, at 5.26% down from August's 5.39%. "There is still plenty of slack in the labor market," Neil Shearing, an analyst at Capital Economics in London, told Reuters. "There is no capacity pressure and growth will slow over the next 12 months."

Last week saw the central bank keep the interest rate at 4.5%; however, policymakers have said that they will be watching for inflationary pressure as well as keeping a close eye on global markets.

Calderón Makes Shocking Allegation
Mexican President Felipe Calderón has accused politicians in the country's main opposition Institutional Revolutionary Party (or PRI) of dealing with criminals, less than a year before the July presidential elections. Thanks primarily to Calderón's war on drugs having taken more than 42,000 lives since December 2006, his own National Action Party (PAN) is expecting defeat at the polls.

"This is really serious," Javier Oliva, a political scientist at the National Autonomous University of Mexico (UNAM), told Reuters. "The president has an obligation to prove this now, to name names. The president is regressing into a negative stance of being president of the PAN, and not president of Mexico."

This subtle difference is a big deal in Mexico, where the president is expected to steer clear of party politics.

Presidential Challenger Floats Pemex Private Investment
PRI candidate Enrique Peña Nieto, the frontrunner for the presidency, told the Financial Times this week that state oil company Pemex could "achieve more, grow more, and do more through alliances with the private sector." This raises the prospect of private investment in the company for the first time in more than 50 years.

It was his own party that nationalized the oil sector in 1938, and the presidential hopeful insisted that this was not an election pledge but the floating of a more general idea. "Mexico cannot waste this opportunity," Peña Nieto told the London paper. "I believe that it is possible to find mechanisms that guarantee, on one hand, the state's ownership of the oil in Mexico but on the other, mechanisms to achieve and encourage a greater involvement of the private sector ... we have to take much more audacious steps."

Twitter: @jammastergirish

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No positions in stocks mentioned.

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