Mexico is famous for its beaches, its food, and its culture, but the Latin American country is often overlooked as a place for investment.
Many people will cite instability in parts of the country when they explain why they don’t want to put their money into the country. And, while the country is considered an emerging market, but it often punches above its weight class. Between 1995 and 2002, the country’s economy grew by an average of 5.1 percent each year, a number not even seen in man developed countries including the United States.
In 2018, Mexico’s gross domestic product was $2.6 trillion, smaller than the United States’ GDP for the same year, but bigger than its other NAFTA partner, Canada’s, whose GDP was only $1.9 billion in 2018.
Mexico is about the same size geographically as Saudi Arabia, but its population is five-times the size.
Indeed, while many investors may overlook Mexico, its economy is the second-largest in Latin America and the fifteenth largest in the world, according to Investopedia.
Over the next two years, the IMF is projecting that Mexico’s economy will grow by 2.3 percent and 2.7 percent, respectively. Automotive, oil, and electronics are among the country’s most developed industries. Financial services and tourism are prominent contributors within the service sector.
Mexico is the twelfth biggest exporter in the world. The United States receives the majority of those products, with 79 percent being sold to its Northern neighbor in 2017. While Mexico has a historic trading relationship with the US and Canada, its actually has trade agreements with 46 nations, more than any other country.
The country’s primary export is its manufactured products. Indeed, Mexico produces and exports the same amount of goods as the rest of Latin America combined. It is also a big resource producer, providing fruit, vegetables, coffee, cotton, and silver to the rest of the world. It also produces nearly 3 million barrels of oil per day, making it the world’s eighth-largest oil producing nation.
All of that is to say, while many investors may not appreciate Mexico as an investment opportunity, the country has become a significant global player in recent years.
Moreover, the country is often included on lists of emerging markets, showing significant growth potential for the country in the future.
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How To Invest In Mexico
Mexican stocks are sold on two stock exchanges. The first is the Mexican Stock Exchange, which is also known as the Mexican Bolsa, Mexbol, or BMV. The second is the Institutional Stock Exchange, or Bolsa Institucional de Valores in Spanish - also known as the BIVA.
Both of these stock exchanges would be similar to American investors, given their similarities to exchanges like the New York Stock Exchange or the NASDAQ in the United States or the TSX in Canada. Both Mexican exchanges allow for stock trading as well as trading in other financial instruments.
For interested investors, they should consider activity on both exchanges when investing their money.
The Mexican exchanges offer similar trading options to those available on their North American counterparts. Trades are regulated by Mexico’s National Banking and Securities Commission, locally known as Comisión Nacional Bancaria y de Valores, or CNBV.
Companies are listed on one exchange but can be quoted on either. Many non-Mexican companies trade on the exchanges including Citigroup and Anheuser-Busch Inbev.
Overall, it’s fair to say that Mexico’s economy typically trends with the United States’ economy thanks to their close trading and economic relationship. This can mean that, in order to take advantage of Mexico’s growing economy, investors may need to invest in individual Mexican companies or specific indexes.
How To Buy Mexican Stocks
As always, before making any investment it’s important to do your research. When looking for Mexican companies to invest in, you should consider your investment goals. These can include sectors that interest you, specific companies that have a growth trend, companies that are paying dividends, or any other criteria you think is important. It’s almost always advisable to diversify your portfolio and look at a range of investments.
After that, investors will need a Mexican stockbroker who is allowed to trade on Mexican exchanges. There are also interactive brokers that can be a excellent option for investing in emerging markets.
Before you start investing your hard earned money, in might be a good idea to try some practice trading. Many of these online trading platforms offer a sandbox area where investors can experiment without risking their actual money. Instead, they offer test portfolios in order to test out strategies.
After that, it’s time to get trading. First, you’ll need to fund your account which is typically done with an ACH transfer from your bank account. Usually, there is a required minimum investment amount for brokers. You may want to consider setting up an automatic deposit to keep building up your investment.
Keep an eye on your trading costs when you get started. Commissions costs can creep up on you if you’re not careful.
Top Mexican Stocks
Now that you’re ready to invest, here is a list of Mexican companies that look particularly promising at the moment.
Of course, many companies have been hit hard by the global Coronavirus pandemic and Mexican companies are no exception. But these particular businesses seem better prepared than others to weather the storm and come out ahead in the coming months.
1. Grupo Elektra
Grupo Elektra, the bank and appliance dealer owned by Mexican billionaire Ricardo Salinas Pliego, has faired particularly well during the pandemic. Indeed, the company has remained relatively unscathed, outperforming many other Mexican stocks in recent months.
While those other company’s stocks dwindled and tanked amidst COVID-19 fears, sending Mexico’s S&P/BMV IPC index lower by 26 percent, Grupo Elektra’s shares gained 2 percent between February 21 and March 23, making it the best-performing stock on the index.
As Bloomberg points out, “Elektra is a complex company to analyze. It has a chain of stores that sell products like TVs and refrigerators to the poor on low payment plans with big interest rates.” Meanwhile, the company’s banking unit makes up nearly two-thirds of its revenue, as Bloomberg points out. Interestingly, the stock price has performed well even as other Mexican financial firms and retail companies have suffered.
Grupo Elektra’s bank accounts typically are sold to lower-income people, and the bank doesn’t ask for many of the requirements that other banks do. On top of that, they provide loans that can be paid for years to come, often at high interest rates. So, in a country with a high population of poor people, Grupo Elektra does a lot of business.
A word of caution: Elektra’s owner, Ricardo Salinas Pliego, de-listed Elektra and his other company, TV Azteca, from US markets a decade ago after settling fraud charges brought by the US Securities and Exchange Commission. He was embroiled in another legal battle with the Mexican stock exchange, which tried to kick Elektra off its benchmark index in 2012, which he eventually won.
Those legal disputes have made it difficult to find analysts willing to cover the company. Many major banks have dropped coverage as a result.
Headquartered near Monterrey, Cemex has grown to become the second-largest building materials company in the world. This Mexico stock operates in over 50 countries, though its Mexican and US operations make up a little over half of its overall revenue.
Despite this, the company’s stock hasn’t seen the gains one might expect over the last decade. The economic crash and resulting peso devaluation saw the company selling off certain assets to refinance its debt. Cemex saw high debt levels and losses for years afterward.
Just look at the numbers: around the middle of 2007, CX was trading at about $30 per share. By 2011, Cemex shares were trading below $2. The company was also known for pursuing growth above profitability, which turned investor sentiment sour.
But in 2015, the company turned profitable and it has shown profits every until the pandemic. Now, while shares are down around 40 percent compared to July 2017 highs Cemex’s high debt-to-equity ratio has been slipping lower since 2011.
But there are reasons to believe there is light at the end of the tunnel. Cemex’s high debt-to-equity ratio has been trending lower since 2011. And after losing money for five years in a row, Cemex EPS turned positive in 2015 and has been trending higher since.
With an end to the pandemic in sight, Cemex could be poised for additional growth. It’s certainly shown potential for an upswing in the past.
3. America Movil ($AMX)
With a market value of $51.1 billion, America Movil is the biggest Mexican mobile phone service provider. AMX is also one of the Mexican stocks on the NYSE.
The company was grown into its current position by another Mexican billionaire, Carlos Slim. Slim is the richest man in Mexico and the seventh richest person in the world.
Under its Claro brand, America Movil is the fourth biggest mobile network operator in the world, at least in terms of subscribers. The company has around 280 million mobile subscribers across 25 countries in Europe and the Americas.
While smartphones have become ubiquitous to modern life, America Movil has secured its position in one of the few global markets where growth in the sector is still possible.
Many Mexican smartphone users still rely on pay-as-you-go or prepaid plans, rather than post-pay contract plans. Now as customers across Latin America begin consuming more data and demand increases for services, AMX is one of the top Mexican companies to meet those demands.
4. ETFs and ADRs
When looking for Mexican stocks to buy, investing in individual companies is certainly much sexier. But it’s possible the best Mexican stocks aren’t companies at all.
For many, the easiest way to invest in Mexico is through exchange-traded funds, or ETFs. Typically, you want to find ETFs that hold a diverse portfolio of securities and trade on a US stock exchange.
For example, the iShares MSCI Mexico Investable Market Index Fund (NYSE: EWW) has a net asset value of over $1.5 billion and holds more than 60 different Mexican securities in its portfolio.
ProShares also offers ultra-long and ultra-short ETFs that have more leverage but less liquidity.
Or, if you’re an investor looking for more exposure, you might be wise to consider American Depository Receipts (ADRs). These are US-traded securities that track foreign stocks. Because these trade on US exchanges, you don’t need to be concerned with foreign brokerage accounts. However, you may need to pay foreign taxes.
The Downside to Investing In Mexico
Investing in Mexican stocks isn’t without its downsides. The company is known for widespread corruption and with good reason. The petty corruption of government officials is estimated to add approximately 10 percent to the cost of goods and services in Mexico.
Organized crime is also a significant presence in the country. A drug war has raged in the country since 2006, causing tens of thousands of deaths. While this may not impact export businesses directly, it can cause geopolitical instability in the region. However, the country recently announced it is taking steps to legalize marijuana, which could curtail many of these illegal operations.
Should You Invest In Mexico?
Mexico is a familiar country to many international investors, but those investors don’t necessarily appreciate the country’s economic potential. This could mean there is a lot of potential for profits in the country.
When looking for Mexican stocks to invest in, it’s important to do your research. Mexico’s economy is primarily export-driven. Mexico stocks that are well placed in this sector could reap rewards down the road.
The country does have problems with corruption and crime, but it has a hard-working and large labor force ready to move up the economic ladder. Mexico’s has a vast population that is looking to move up in the world, which will mean more construction, more luxury goods, more smartphones, and more opportunity for investors.