MEXICO - Pension reform and a strong economy could see an annual inflow of up to US$10bn of domestic institutional money into the Mexican stock exchange, creating opportunities for global investors.
Chris Palmer, head of global emerging markets, Gartmore, said: "We could be about to see a quiet revolution in Mexico with pensions feeding money into equity markets and strengthening the economy even further."
BBVA's afore, Bancomer, announced a 38.2% increase in operating profit so far in 2008 compared to Q1 in 2007, which it partially attributed to greater stability in the system.
Palmer outlined the great potential for expansion of the oil sector, with only 10% of its capacity currently tapped.
He continued: "There has been a change in governmental policy, leading to more urgency to update oil production. This could also open the door for international investors to be involved in what could take a $30bn annual commitment."
For several years, commentators on the region have maintained the institutional framework in Mexico has shown itself to be strong when tested, whilst the central bank showed up its OECD peers by building up its credibility.
This should result in helping to bring down risk premiums charged by the market for debt and produce attractive real yields.
Domestic pension funds have been gradually increasing their exposure to long-dated Mexican bonds, but the duration of their assets has remained shorter than that of their liabilities.
The combination of strong fundamentals and the presence of an asset/liability mismatch has led the market to expect pension funds to continue buying long-dated Mexican government bonds and for long-dated yields to fall.
Real estate manager, LaSalle Investment Management, said a growing middle class, employment growth and credit availability made it a good place to invest in property.
It also cited an increase of 4% to the minimum wage and around 100,000 jobs created in 2007 helping GDP to grow by 3.3%.
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