Somewhat unexpectedly, this enthusiasm set the tone for the entire trip. Of
course, outside of Mexico, many believe that U.S. President Donald Trump’s
threats have catapulted the country into terminal decline (an ETF company
has even launched a global ex-Mexico listing).
Boots on the ground tell a different story – one of resurgent patriotism
and an eagerness to enlarge Mexico’s global trading ecosystem. Many Mexican
business owners with both domestic and U.S. footprints have decided to
re-focus their efforts in Mexico. Others are pivoting their trade efforts
to entirely different regions.
To be sure, real risks lie directly ahead. With the recent stampede out of
the Mexican peso and the currency currently undervalued by around 50%
(Spring break in Cabo, anyone?), a crisis is undoubtedly here again.
But this wouldn’t be the first time. After all, crisis is a recurring
feature of Mexican history. The list is long: the 1976 peso devaluation;
the 1982 debt crisis (and the “década perdida”- the lost decade –
which followed); and the hyperinflation of the early 1990s, which
ultimately led to the Tequila crisis of 1994.
But pessimism has likely gone too far, pricing in a worst-case scenario for
Mexico. There are limits to portraying the U.S. as a victim of Mexico. The
U.S. trade deficit is only a quarter of its exports to the country, in
contrast to a deficit with Japan of twice exports and with China of three
times. As with many asset classes damaged by Trump rhetoric, there is
plenty of room for positive surprises.
What’s more, currencies have adjusted to new realities quickly. For
example, the new border tax adjustment, as envisaged by the House
Republican majority, looks increasingly likely. Yet, the Mexican peso has
already discounted this scenario, devaluing to radically improve its trade
With the Mexican currency back at a level not seen since the depths of the
Tequila crisis, it is time to keep Mexico on the “watch list.” Ironically,
Trump’s anti-trade rhetoric has made Mexico far more competitive (via a
cheaper currency) and engineered domestic optimism. This is also true for
other emerging markets and confirms our overweight in Asia – countries that
have already radically sharpened their competitiveness through currency
debasement over the last four years, benefit more from a lower oil price,
and trade on far cheaper equity valuations than Mexico.
Tyler Mordy, CFA, is President and CIO for
Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities
selection. He specializes in global investment strategy and ETF trends.
This article first appeared in
Forstrong’s Gobal Thinking feature. Used with permission. You can reach Tyler by phone at Forstrong
Global, toll-free 1-888-419-6715, or by email at
. Follow on Twitter at
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