Mexico election: Crime, infrastructure gap top investors’ concerns

With less than a week to go before Mexico’s June 2 presidential election, investors are sizing up the challenges facing its next leader in two crucial areas: the economy and security.

The next president — it likely will be former Mexico City Mayor Claudia Sheinbaum, according to the polls — will need to drum up more private funding for energy and infrastructure projects while assuring companies that their investments will be safe from drug-related crime and violence, according to investors.

“When we talk to multinationals, some of the biggest obstacles that they’ll point to is really some of the governance, security aspects,” said Kevin Ritter, interim head of the emerging markets team at Pasadena, California-headquartered Western Asset Management.

Security in the physical sense, or the lack of, is also a major concern among voters and it “hasn’t gotten any better” under the current administration, Ritter said.

Concerns about legal security for businesses have also grown under the current president, Andrés Manuel López Obrador, who is known as AMLO. He rattled investors when he took office in 2018 by promptly scrapping a major Mexico City airport project and later halting a $1 billion brewery investment by US-based Constellation Brands.

AMLO’s successor, however, is expected to be more pragmatic with investors, Ritter said.

Mexico has both huge investment needs in energy generation and transportation, logistics, warehouses and water and the potential to capture more foreign investment as businesses relocate productive capacity from Asia to be closer to the US market.

“I think the way that the business community is going to think that this is perhaps a new opportunity or a new chance here with Claudia Sheinbaum coming in,” he said.

Sheinbaum had 50% of the votes in a latest poll published by Altica, ahead of businesswoman Xóchitl Gálvez in second place with 40%.

MEXICO’S MOMENTUM

Todd Jablonski, global head of multi-asset investing at US-based Principal Asset Management, said that he sees now as a good time to invest in Mexico.

“Investors see a 7% revenue growth forecast this year, 14% earnings growth this year, an increase in the dividend payout this year, and, using data going back 20 years as of the end of April, you saw that Mexican equities had been cheaper less than 30% of the time,” Jablonski said.

“What I see is an opportunity for earnings growth that is faster than is forecast across the rest of Latin America” and for Mexico to be a growing trade partner with the United States, he said.

The challenge for the next president will be to maintain this positive momentum and enthusiasm toward sectors such as nearshoring, according to Jablonski.

“Most of the optimism that we have in Principal really has to do a lot with REITs and infrastructure developments and in logistics providers,” he added. “Those are, I think, some of our favorite private sector areas for investment.”

Jablonski said Mexico is popular with two kinds of investors from an economic standpoint: those that believe in the nearshoring opportunities and the short-term investors taking advantage of the carry trade opportunity in Mexico.