Structural reforms provide a solid basis
Overall, Mexico is increasingly becoming a heavyweight among emerging markets. Its gross domestic product amounted to USD 1.2 trillion in 2018, which puts it in 15th place directly behind Australia with 1.4 trillion US dollars. It is also the twelfth largest exporter in the world and has free trade agreements with 46 countries, more than any other country. It produces and exports the same amount of goods as the rest of Latin America combined. “Its no. 1 exports are not commodities, but manufactured products such as cars, electrical equipment and computers” points out Bruhin.
In recent years, many reforms by the previous president, Enrique Peña Nieto, have helped reduce dependency on oil, which used to account for about 40 percent of government revenues, to about 20 percent today. The new President Andres Manuel Lopez Obrador, AMLO for short, wants to push this development forward and plans to build two new refineries, renovate six existing ones and allocate 4 billion US dollars for new exploration. "These investments are urgently needed to increase margins and boost production," Bruhin said. AMLO's goal is to increase production from currently 1.9 to 2.5 million barrels per day within two years.
Investment opportunities in the energy and finance sector
Although Mexico is undoubtedly closely linked to the US, one can also find interesting investment opportunities that are relatively independent of the USA, for example in the energy sector. Saavi Energia (the bond is emitted under through the special purpose entity Cometa Energia) is the fourth largest independent energy producer in Mexico and has been in the market for over 20 years. Most of its customers are commercial and industrial clients, of which they retain 92 percent. The cash flows are thus quite stable and predictable. The yield on the recently issued bond is currently 6.3 percent. In the financial sector, too, there are interesting, innovative financial companies such as AlphaCredit and Unifin Financiera, which give borrowers easy online access to loans and generate a return of over 10 percent. "As active managers and value investors, we keep finding gold and will be on the lookout if the current tensions can be used as buying opportunities," Bruhin says.
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