Mexico has been on the wrong side of China's economic boom for the last decade, but is now seeing an upturn in its fortunes as the Asian powerhouse's economy slows and international stock pickers look to hedge their bets. Fund managers are shifting the composition of their portfolios to protect themselves against further slowing in China.
That is bad news for exporter Brazil, but good news for Mexico, which has low trade exposure to Asia and which is starting to claw back the export share and wage competitiveness it lost to China. After China joined the World Trade Organisation in 2001, Brazil boomed due to a seemingly endless Chinese appetite for soybeans and iron ore, while Mexico's manufacturers struggled to compete with cheap goods in their main US market.
Brazil has grown almost twice as fast as Mexico in the last decade and overtook its northern rival as Latin America's biggest economy in 2005, becoming a darling of investors.
But a recent soft patch in Brazil and a slowdown in China's breakneck growth are prompting some investors to take another look at Mexico's strong ties to the United States and the chances its new president will undertake major reforms that could push up growth.
In the seven months through July, foreign investors plowed $3.4 billion into Mexico's stock market compared with $2.9 billion in Brazil. That is no mean feat since the commodity-heavy Bovespa index of the Sao Paulo stock exchange has a market capitalisation about three times greater than Mexico's IPC, which is more skewed to local consumption.
This upsets the trend of recent years. Brazilian stocks attracted $7.1 billion in net portfolio inflows last year, compared with $6.2 billion in outflows from Mexico. Brazil scored a whopping $37.7 billion in inflows in 2010, while Mexico attracted only $640 million.
Many still expect Brazil to rebound given record low official interest rates, a raft of government initiatives to boost growth and an expected wave of infrastructure spending ahead of the 2014 soccer World Cup and the Olympics in 2016.
Data from funds tracker EPFR, which is seen as a leading indicator for portfolio investment, showed the biggest inflow into Brazilian equity funds in three months last week, following China's approval of $150 billion in infrastructure projects.
China's 7 percent-plus growth still far outstrips the United States and Mexico, but this has almost halved from before the financial crisis. While the direct economic impact on Brazil may be limited, the effect is felt in the stock market, where almost 40 percent of stocks are linked to commodities and energy. The share price of Brazilian miner Vale, the world's largest iron-ore exporter, has fallen in tandem with Chinese ore prices and BlackRock fund manager William Landers said he has moved from overweight to close to neutral on the company.