Is there profit in Mexico's Trump slump? Funds divided

Grupo Aeroportuario del Pacifico SAB de CV

11/11/2016 20:20

By Dion Rabouin and Sujata Rao 
    Nov 11 (Reuters) - The bloodbath in Mexican assets following 
Donald Trump's unexpected rise to the U.S. presidency has some 
seeing a buying opportunity. Others fear the worst is yet to 
come. 
    The peso suffered a historic sell off this week on fears 
Trump's anti-free trade rhetoric could turn into policies that 
would hit Mexico's exports. Mexican stocks suffered their 
steepest fall in five years and peso bond yields spiked to 
five-year highs. 
    During his campaign, Trump vowed to rewrite or scrap the 
North American Free Trade Agreement (NAFTA), which has helped 
Mexico increase its factory exports to the United States 
eight-fold since 1993 to $316 billion a year. 
    Mexico's IPC stock index  .MXX  has shed more than 7 percent 
in the last three days, its worst three-day drop since September 
2011. 
    Credit Suisse said that after the sell off this week, it was 
buying Mexican equities, switching back from an underweight 
position. 
    "The Mexican peso is now discounting a correction in the 
country's global export market share to pre-NAFTA levels," 
Credit Suisse said in a note to clients. "The peso has already 
weakened to reflect U.S. related external risks." 
    Templeton emerging market manager Mark Mobius seconded that 
view in an interview with CNBC. "In the case of Mexico, it looks 
like a great opportunity to buy stocks and the currency is down 
dramatically," he said. 
    Ricardo Adrogue, head of emerging market debt for Barings, 
said Mexico was being unfairly punished given that a move toward 
protectionism by the United States would hit many economies 
around the world. 
    "Even if they specifically target NAFTA, the implications 
for the Mexican economy would be relatively mild," said Adrogue, 
adding that Mexican domestic consumption would support growth. 
     
    "IMPOSSIBLE" TO CALL 
    The peso sank to a new record low on Friday of 21.37 per 
dollar before paring losses to trade at 20.72. By one measure, 
the peso is about 25 percent cheaper than its 10-year 
average. urn:newsml:reuters.com:*:nL1N1DC0N3(See graphic) 
    Many strategists think the peso could tumble further given 
the uncertainty that will weigh over Mexico until Trump takes 
office and makes clear what his plans are. Nomura forecast the 
currency could end the year at 25 per dollar. 
    "We need to be intellectually honest with ourselves and our 
clients and accept that calling for any nominal level of 
interest rates and FX rates in the coming quarters is quite 
impossible," BNP Paribas said in a note. 
    The yield on the country's benchmark 10-year peso bond 
 MX10YT=RR  has shot up more than 1 percentage point in the last 
three days to bid at 7.23 percent on Friday, its highest since 
2011 and its biggest jump since 2008.  
    If foreign investors begin to buy into Mexican debt, it 
could help limit the peso's slide. But if investors who already 
hold Mexican peso bonds throw in the towel and sell, it could 
accelerate the peso's losses as they buy dollars instead. 
    Casey Preyss, a fund manager at William Blair, said he was 
waiting to see what policies Trump would actually commit to and 
implement before agreeing if it was a clear buying opportunity. 
He shed much of his Mexico position earlier this year, but held 
on to airport operators. 
    "The companies that could benefit are Mexican airport 
operators as Mexico is a popular tourist destination and it 
became 20 percent cheaper this week," Preyss said. 
    Mexican airport operators Grupo Aeroportuario Centro Norte 
 OMAB.MX  and Grupo Aeroportuario del Pacifico  GAPB.MX  are 
both down about 10 percent in the last three days, while Grupo 
Aeroportuario del Sureste  ASURB.MX  has shed more than 5 
percent.  
 
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Mexico peso looks cheap     http://tmsnrt.rs/2fHdpx5 
BREAKINGVIEWS-Mexico's greatest defense against Trump is time    
 urn:newsml:reuters.com:*:nL1N1DC0RR 
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 (Additional reporting by Bruno Federowski; Writing by Michael 
O'Boyle; Editing by Frank Jack Daniel and Andrew Hay) 
 ((michael.oboyle@thomsonreuters.com; +5255-5282-7153; Reuters 
Messaging: michael.oboyle.thomsonreuters.com@reuters.net)) 
 
Keywords: MEXICO FUNDS/