The Mexico Fund (NYSE:MXF) is a closed-end fund designed with the investment objective of providing long-term capital appreciation through strategic portfolio allocations in the markets.  Incorporated in June 1981, and domiciled in the U.S., has always been managed by Impulsora del Fondo Mexico S.C. The fund offers well-positioned access to Mexico’s economy through a broad range of public listed companies.  

Economic Trends in Mexico

Since MXF mainly offers exposure to equities securities listed on the Mexican Stock Exchange, the economy of Mexico has a substantial impact on the fund. However, several of these companies now earn a significant portion of its income and profits abroad, through exports and subsidiaries in other countries or regions. Broadly speaking, the macro trends look highly encouraging.

Economic: Mexico GDPSource: World Bank / Trading Economics

In 2017, the economy of Mexico grew at a rate of 2%, while in the first half of 2018 the pace maintain the 2% rate. Analyst surveys at the Mexican Central Bank predict sustained full-year expansion of 2.3% and 2.2% for 2018 and 2019, respectively.

Political uncertainty due to Presidential elections held on July 1st 2018, and the significant volatility seen in the global stock exchanges earlier this year had a visible impact on the share prices of MXF.  Share prices reached its yearly low on June, however, the stock has posted a sharp bullish reversal, and this suggests that a long-term bottom is likely in place for the stock.

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The prior negative trends in the stock price can be attributed to strong movements in the global environment.  Some of the major events that have impacting the MXF fund during this period:

  • Sharp decrease in oil and other commodity prices staring on 2014.
  • Political environment in the U.S.
  • Pending resolution of NAFTA renegotiations.
  • Political uncertainty in Mexico due to Presidential elections. 

Macro trends over the last few years have not been favorable for regional assets.  But these declines have created significant opportunities for investors. When viewing the closed-end fund through the lens of its discount to net asset value (NAV), we can see that the Mexico Fund is now trading at some of the deepest discounts in its recent history.

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Source: Morningstar

On June 12, 2018,…

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