BOLSY - Mexico's On Sale - BMV Group's Trading Volumes Are Up But Its Price Is Down
2024-06-24 12:06:46 ET
Summary
- Mexico is on sale due to profit-taking by currency speculators and short selling of equities, which will eventually have to be covered.
- Mexico's economic fundamentals are solid and it has an enormous opportunity due to the 'near-shoring' manufacturing trend.
- Trading volumes on MEXBOL, the Mexican Stock Market, have skyrocketed. Despite this, the price of BOMXF, the ADRs of its owner, are down.
- With a 7% dividend, no long term debt, and a 20% ROE, it's a BUY.
Mexico, and everything Mexican, is on sale.
On June 2, 2024, in an historic event Mexico elected its first female president, and its first Jewish president – Claudia Sheinbaum. Everything tanked, stock market, Peso, maybe even the price of Agave Azul.
Here are some possible explanations for the sell off;
- Ms. Sheinbaum is a raving Marxist-Leninist who wasn't expected to win, and her policies will be much more radical than those of her predecessor, President Andrés Manuel López Obrador, also known as AMLO. Well - she was ahead in the polls for months - no surprise there. And, she is from the same party as AMLO. Moreover, the incoming Finance Minister, Rogelio Ramírez said the federal deficit will be cut from this year’s level of nearly 6% of gross domestic product, to around 3% in coming years. Maybe he's lying, but at least he isn't saying that the deficit will sky rocket to 10%. So, I don't think that this represents a sharp turn to the left.
- International investors are anti-semitic, male chauvinist pigs who don't think a woman is up to the job, and that Mexican voters are too "woke" to know who the best choice is. That one doesn't fly either - the markets loved Margaret Thatcher, and again, Ms. Sheinbaum's election wasn't a surprise.
- Perhaps it's the fact that her party, the ruling party Moreno, will have a " one-month overlap between the current and forthcoming congresses <that> will grant the party a supermajority in the lower house and close to a two-thirds majority in the Senate. This may provide AMLO with the opportunity to implement his ‘Plan C’ constitutional reforms – a set of proposals that serve as a successor to his beleaguered ‘Plan B’ package, which was overturned by the Mexican Supreme Court in 2023." In truth, it was a surprise that the Moreno party won as many seats as it did, but what exactly is Plan C? As near as I can see, there are two main components. The first is reforming the judiciary, so that some judges are elected. That sounds downright American - how radical! The second is taking away some of the oversight powers of the national body that oversees federal elections, and / or appointing members sympathetic to his party to that body. You can't have that - it would be like having GOP Secretaries of State overseeing elections in red states, and Democrat Secretaries of State doing the same thing in blue states ... Oh ... Wait a second ...
- Could the new administration raise taxes on the wealthy, and on corporations, to such an extent that there is a flight of capital? Maybe, but; i) She has praised AMLO's policies and campaigned on continuity , ii) The incoming Finance Minister, Rogelio Ramírez, occupied the same post in AMLO's administration, iii) She has a PhD in energy engineering, is described as data driven and non-confrontational, and, iv) Nothing in her record as mayor of Mexico City seems to suggest this. All in all, it seems like more of the same, and to be honest, I don't remember this kind of reaction when Victor Orban and other populists with a supposedly anti-democratic agenda were elected.
- Could it be that there is an overreaction? It's very possible. What about some of the air coming out of a speculative bubble? Almost certainly.