Mexico's IPC stock index ended the year up 17.88 percent, significantly outperforming Brazil's Bovespa, as Mexico benefits from its proximity to an improving US economy and hopes about potential domestic reforms. Following last minute wranglings over the US "fiscal cliff," the IPC ended flat on Monday at 43,705.83 points.
By comparison, Brazil's Bovespa, which was closed on Monday, rose 7.4 percent for the year. Chile's IPSA, also closed on Monday, was up just shy of 3 percent for 2012. "It's been an extraordinary year," said Gerardo Roman, head of trading at the Actinver brokerage in Mexico City, of the performance of Mexican stocks in the face of a "fundamentally bad" global economic backdrop.
But continued gains in Mexican stocks are far from assured, Roman said, citing heavy dependence on two factors: an improving US economy and fiscal and energy reforms that new Mexican President Enrique Pena Nieto has earmarked for completion within a year. Mexico sends about 80 percent of its exports to the United States. "It's all down to the reforms," said Roman, who warned that Mexican stocks were now relatively "pricey" compared with Brazil's.
An energy reform, which would open up state-owned oil giant Pemex to outside investment, could translate into a windfall for petrochemical companies like Mexichem, while fiscal reform would benefit retailers like Femsa , Roman said. Analysts, traders and fund managers also highlighted Mexico's banking sector as one to watch next year, after the successful listing of Spanish bank Santander on Mexican and US bourses raised more than $4 billion.
The over-subscribed listing was the year's second largest in the United States after Facebook's, and bolstered Mexico's reputation as Latin America's investment darling. "Banks are a great way to capture an improving economy: they're right in the middle of it," said Geoffrey Pazzanese, co-manager of the Federated InterContinental Fund in New York, who was betting on Mexico's Banorte for next year.
With hours to go until the deadline of the US "fiscal cliff," some sort of contract seemed to be emerging. But with no definitive deal in place, the short-term outlook for Mexican stocks could be rocky. If no deal is reached, the United States could fall back into recession as a combination of spending cuts and tax hikes bites into the country's fragile recovery. "The market is expecting a deal to be reached," said Roman. "Let's wait and see what happens." Telecommunications giant America Movil, down 0.64 percent, drove losses in the IPC, while mining group Penoles ended the day up 1.99 percent.
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