Nearshoring bets boost Mexican real estate, transport shares

Grupo Aeroportuario del Pacifico SAB de CV

04/04/2023 13:00

By Isabel Woodford
       MEXICO CITY, April 4 (Reuters) - Investors optimistic
about a potential Mexican nearshoring boom have been scooping up
stocks in local real estate, transport companies and banks,
analysts say, in a bid to cash in on the wave of U.S businesses
setting up shop over the border.
    The trend has seen increasing numbers of companies move
production closer to North American buyers - specifically to
Mexico - and away from Asia, following supply chain snarls
during the pandemic.
    Among the biggest winners on the Mexican exchange are real
estate companies like Vesta  VESTA.MX , which soared 22% in the
first quarter, alongside Fibra Prologis  FIBRAPL14.MX  – up 17%
- and Fibra Terrafina  TERRA13.MX  – up 19%; outpacing the
country's main stock index  .MXX  11% hike.
    This pool of real estate REITs - or real estate investment
trusts - own a high number of industrial parks and factories in
the north which are reaching capacity thanks to an influx of
manufacturing clients.
    "REITS are the natural beneficiary from nearshoring," Carlos
Alberto Gonzalez Taberes, an analyst at Monex, says, as high
demand for industrial parks in Mexico's north push rents - and
revenues - higher.  
    Fibra UNO  FUNO11.MX , for instance, boasted 98% occupancy
across its industrial property portfolio in the fourth quarter.
    "I am very happy to say, and I would not like to sound to
brag about (it), but we are in the best shape to receive
whatever nearshoring throws at us," Fibra UNO's CEO Andre
El-Mann Arazi said in its Q4 earnings call.
    Carlos Peyrelongue, a Mexico equity analyst at Bank of
America, says the REITs' stock rally "is definitely from the
nearshoring push", given their exposure to the export industry.
    
    TRANSPORT AND BANKS
    Transport groups are another set of beneficiaries from
nearshoring, analysts say, with several vastly outperforming the
benchmark index.
    Mexican airport groups Grupo Aeroportuario del Centro Norte
 OMAB  soared 34% in the first quarter while Grupo Aeroportuario
del Pacifico  GAPB  was up 27%, outpacing European peers like
Aeroports de Paris  ADP.PA  and Fraport  FRAG.DE . 
    At least part of these companies' growth is coming from
nearshoring, the CEO of Grupo Aeroportuario del Centro Norte
said in its fourth quarter earnings call, with airport traffic
growing faster in northern states like Nuevo Leon and Chihuahua.
    "The impact within nearshoring - that is real," CEO Ricardo
Dueñas said. "The traffic performance in the last few months,
(at) nearshoring destinations (like) Ciudad Juarez, are growing
at a much larger percentage than the average." 
    Meanwhile, GMexico Transportes  GMXT.MX  – the transport arm
of conglomerate Grupo Mexico  GMEXICOB.MX  - was up 11% versus
the same period last year. 
    Peyrelongue says investors are watching the company closely,
given it has the largest railroad network in Mexico and is well
placed to profit from a boom in cross border trade, aided by
Mexico's wealth of free trade agreements. 
    Local bank stocks are also seen as winners from the
nearshoring push, though they have recently come under pressure
because of concern about global financial stability.
    Gonzalez says top financial institutions are expected to
benefit from the national economic tailwind, with total exports
up 12% annually at the end of 2022.
    Peyrelongue says regional banks like Banco Regional  RA.MX 
in particular are set to benefit as northern hubs, which should
see an increase in commercial loans from nearshoring.
    One of Mexico's largest banks, Banorte  GFNORTEO.MX , also
says it's gearing up to reap the benefits of nearshoring, saying
last week that it plans to hire 800 new staff to meet
nearshoring demands, including to finance infrastructure. 
    
    MARKET SKEPTICISM
    Despite Tesla's recent announcement that it was going to set
up a large new factory in northern Mexico, there are still
questions about the country's nearshoring forecasts. 
    "(I'm) skeptical of the idea that the reorganization of
supply chains will result in a large surge of capital inflows in
the near term," said Deutsche Bank's chief Latin American
economist, Sebastian Brown.    
    "There are areas...that (Mexico is) lacking," he said,
pointing to constraints for example in the power sector, where
there are concerns an influx of new factories could overload the
electricity grid.
    Morgan Stanley economists also said in a report last year
that they believed Mexico was "unprepared" for a fresh
nearshoring wave, and had "underinvested."
    Gonzalez says any nearshoring boom "is going to be little by
little."
    But Peyrelongue said investors should get in front of what
is a clear trend, amid early "strong appetite" from companies to
relocate closer to the United State.
    "These are companies that want to diversify risk, and reduce
risk to China...so they're coming to Mexico."    

 (Reporting by Isabel Woodford;)
 ((Isabel.Woodford@thomsonreuters.com;))