Mexico Revival Seen, With Caveats

Investors, bankers and issuers are optimistic about Mexican markets in 2010, although there are plenty of hurdles. The economy is widely expected to rebound and grow by at least 4%, and there is hope that local capital markets will follow. “From a fundamental perspective, I see the cyclical rebound to be fairly positive,” says Lupin Raman VP of EM at Pimco, which has $1trn under management. Debt dynamics are “fairly favorable” relative to other EM credits, and the investor notes that Mexico remains a good strategic allocation in an international portfolio. “Mexican local rates are favorable relative to other markets,” says Raman, who also sees value in the currency. The country’s DCM shows limited signs of life, though it remains to be seen if it will take names that are lower quality than Pemex or America Movil, and if investors and issuers can agree on covenants. “We see growth in the near future,” says Ricardo Cano, head of DCM at BBVA Bancomer. He notes that the market has calmed since 2009 and gone back to basics. He expects 2010 to be similar to 2009 in terms of volume, though still from only a handful of issuers. Leonardo Pin, CIO at MetLife Mexico, also predicts a rebound in DCM activity, noting that investors are liquid. As for covenants, he says Afores have raised awareness of what they want to see from corporate debt issuers, and it is up to the individual funds to do their own analyses. The emergence of Certificados de Capital de Desarollo (CCD) gives investors more options, though Sergio Mendez, CIO at Afore XXI expects at most only a third of the roughly 30 in the pipeline to be good enough quality to get done. Plenty of risks remain. Raman notes the main concerns are a double dip in the US, and political risks, including challenges to reforms and events in the political cycle that may result in fiscal slippage ahead of the elections. “There is hope for some reform in the long term, but this year it will be difficult,” says Pin. All spoke on panels at