Mexican stocks on Thursday were set to close out their best year since 2006 as the country began to recover from a deep recession, while the peso clocked a year of only modest gains, hobbled by a debt downgrade. The IPC stock index advanced 45 percent this year as shares bounced back from last year's credit crisis amid growing confidence in the economic recovery in the United States, Mexico's top trading partner.
But the Mexican peso lagged the sharp gains seen in other emerging market currencies, weighed down by concerns surrounding a debt downgrade. The IPC stock index slipped 0.5 percent on Thursday to 32,285, pulling back from a more than 2 year high hit this week but leaving it close to its all-time high of 32,851.14. The peso firmed 0.15 percent to 13.059 per dollar after US data showed the number of new claims for jobless benefits fell last week, boding well for a recovery in Mexico's battered exports.
Recent United State employment and consumer data have boosted hopes for a robust recovery and recently helped the dollar on the view that the Federal Reserve may have to raise interest rates sooner than expected in 2010. That has curbed the attraction to riskier emerging market currencies. "The key question next year will be the speculation on how quickly central banks could move to end their stimulus measures," said Mario Copca, an analyst at MetAnalisis consultancy in Mexico City. Mexico's peso has given up more than 3 percent this month after hitting a 13-month high in the wake of a widely expected ratings downgrade by Fitch Ratings in November.
The yield on the government's benchmark 10-year peso bond rose 3 basis points to 8.01 percent. Mexico's central bank is widely expected to raise interest rates during the first half of next year as new taxes spur inflation. Many analysts think the peso will make further gains in the coming months with the uncertainty around its debt outlook now dispelled.
"The peso is expected to recover at the beginning of next year," wrote Gabriela Siller, an analyst at brokerage BASE in Monterrey, in a note to clients. Standard & Poor's followed Fitch with its own downgrade in December. Both agencies cut Mexico's rating by one notch and placed the credit's outlook as "stable," easing fears of further downgrades any time soon.
However, speculation against the peso in the run-up to the downgrade made it lag the gains in other emerging market currencies. The peso gained around 5 percent this year compared to a 35 percent jump in Brazil's real. In stock trading, shares in cement maker Cemex slipped 0.95 percent to 15.58 pesos, but was on track to mark a 38 percent gain this year after a $15 billion refinancing deal in August. Brewer and bottler FEMSA rose 1.17 percent to 63.30. FEMSA shares have gained 53 percent this year, surging in October after the firm said it may sell its beer business.