Mexico’s 2015 budget may contain a slightly lower growth forecast than originally anticipated, but compared to other heavyweights in Latin America, things are still looking good.
In the 2015 budget presented to Congress, Mexico’s government pencilled in a GDP growth goal for next year of 3.7 per cent. As recently as April, the government had been sticking to a 4.7 per cent forecast. Even though a full point lower than that earlier forecast, it’s still ahead of this year’s goal of 2.7 per cent, which the government has ratified.
Even before Ben Bernanke hinted back in May that the US Federal Reserve could soon start scaling back its massive bond-buying programme, Mexican bonds were feeling the pinch. From 3.9 per cent in late April, yields on the country’s most-traded dollar-denominated bond, the so-called M24, rose by as much as 160bp before settling at 5.18 per cent – or 128.7bp higher – at the end of last week.
But is this really a Fed effect?
By Vivianne Rodrigues and Pan Kwan Yuk
Things just keep getting better and better for Mexico.
The country’s stock market is having a record-breaking run. Manufacturing is chugging along nicely. Consumer confidence is at a five year high. And now comes the cherry on the cake – long-term borrowing costs for Mexico this week fell to an all-time low.
Need further proof that Mexico’s star is rising among foreign investors?
Consider this: the country this week braved the choppy global market to pull off a Y80bn ($1bn) issue of “samurai” bonds, or yen-denominated debt, in Japan.
The sale is significant on a number of levels. Not only did Mexico raise a good sum of money, but it did so without having to offer any collateral (an indication of Mexico’s improving credit quality). The fact that the buyers were predominantly Japanese also underscores the growing perception of Mexico as a safer investment thesis thanks to its improving fundamentals and export-led growth engine.
The lesson that doing your homework, and doing it well, pays off has been somewhat of a theme for Mexico this month. That was the main message of Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, when he used a recent visit to the country’s stock market to lavish praise on Mexico’s handling of its public finances.
And it was the underlying theme of Monday’s US$2bn dollar-denominated bond issue, Mexico’s second outing to the international markets this year.