Latin America's Mexican emerging market is set to rally over the second half of 2001 and the first half of 2002, according to F&C Emerging Markets.
The fund manager – which has $4bn assets under management including approximately £250m from UK pension funds – said now is a good time to invest in the Mexican equity market.
The Mexican Stock Exchange – Bolsa Mexicana de Valores – has buoyed since the sale of Mexico’s second largest bank to global financial services group Citicorp earlier this month rising by 7%.
F&C Emerging Markets assistant director of Latin equities Rupert Brandt said the rally was set to accelerate to up to 30-40%.
“Because the macro fundamentals of an emerging market economy are so much more volatile and more illiquid, rises are usually much steeper.“There has been massive monetary easing of the world’s economy with all the major central banks around the world lowering interest rates which is the first litmus test for emerging markets to perform well.”
The second factor is for positive market expectation of global growth within the sector, which Brandt said is high.
He added: “We talking about G7 GDP growth, so we are talking about the three blocks: the US, Japan and Europe.
“Institutional investors are expecting Japan to remain moribund over the near-term, Europe is, however likely to continue growing at a similar rate and there is a very large possibility that the US economy will accelerate in the second half of the year.”
The BMV would be a key beneficiary of the US economy’s upturn. This expectation, coupled with the increasing relocation of US manufacturing firms to Mexico – where labour costs are 25% of US’s, is causing an increase among US pension funds emerging market asset allocation – a trend which Brandt said will cross the Atlantic.
“The performance of the Mexican market will undoubtedly pick up interest from UK pension funds – particularly considering the growing interest from US funds”, Brandt added.
Mexico’s interest rates and inflation are also converging to the average North American Free Trade Association (NAFTA) levels. The country – which historically used to have interest rates of 20 to 30% – expects now to have levels between 6 and 7% in the future.
Brandt said the shift “totally revolutionises the economy and galvanises an entire sea-change in terms of overseas investment into the economy”.
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