Buy Mexico Equities: Citi

Citi has upgraded its recommendation on Mexican equity to overweight from neutral, arguing that valuations make for an attractive entry point. The MSCI Mexico is down 11% from its 2010 high. At 14.1x forward earnings, 6.6x 2010 Ebitda and 2.4x P/BV, the country’s equities are the region’s least expensive, argues the shop. Other drivers include the expectation that US GDP will grow 2.9% in 2010, a relatively low chance the MXP will devalue substantially, if at all, and the central bank’s likely hesitation on tightening rates. Citi calls for a year-end 2010 Bolsa level of 35,000, providing an estimated total return of 17%. The IPC closed at 30,649 up 0.1% Monday. Among Mexican names investors should look at buying are America Movil, Soriana, Coke-Femsa, Geo, Grupo Mexico, Grupo Alfa and Compartamos. Citi also cut Chile to underweight from neutral, on account of that equity index’s 17% run up since December. Generally speaking, Citi says conditions suggest the formation of a regional equity bull market. It pins this on rising global growth, improved earnings, and a gradual withdrawal of liquidity by central banks globally and the accompanying slow rise in the cost of capital.