Thursday, May 16, 2013

Market Analysis: Mexico

From the FT:

Mexico’s lower house of Congress late Thursday gave overwhelming general approval to a telecoms bill that seeks to curb the power of some of the country’s most powerful businessmen

The approval, by 414 votes to just 50 against, marks the first big step towards introducing more competition into telecoms and television as part of a wider push to make Latin America’s second-largest economy more competitive and grow faster. 

In addition, they are also considering a banking reform bill:

Mexico’s centrist government announced it would send a financial reform bill to Congress that seeks to boost economic growth by making it easier and cheaper for companies to access credit. 

Enrique Peña Nieto, the reform-minded president, has said that, together, the reforms would lift the annual growth rate in Mexico to as much as 6 per cent a year within five years from less than 4 per cent in 2012.
Flanked by opposition leaders, now a customary sight when announcing an important reform, Mr Peña Nieto said the reform proposal was “essential for the economy to grow more and to generate the jobs that our population needs”.

This has led to an upgrade in Mexican debt:

The upgrade of Mexico’s sovereign ratings reflects its strong macroeconomic fundamentals, including the absence of macro-financial imbalances, consistent adherence to its inflation targeting and flexible exchange rate regimes, as well as the greater than anticipated commitment of the new administration and Congress to pass structural reforms. Moreover, the resilience of the economy is supported by the stabilization of oil production and progress in addressing drug-related violence, albeit it remains high.

All of the above news items are very positive for the country going forward.  Let's take a look at some of the macro numbers

The current account is in good shape.

The annual growth rate has been consistent for the duration of the latest recovery

 The government budget deficit is contained.

 Inflation is running a little hot, but not at a fatal level.

 And the unemployment rate is very low.

Let's turn to the Mexican ETF:

Resistance was strong in the 60-65 price area -- the pre-recession highs. However, prices have recently moved through that level.

Essentially, we see a rally from mid-June2012 to the Spring of 2013.  Since the beginning of the year, prices have been meandering sideways, trading between the 70 and 76 level.  Overall momentum has been weak, with the MACD nearing a "0" reading.  The CMF tells us there's a net selling situation, albeit at small levels.  All three of the shorter EMAs are trading in a very tight range, again giving us no sense of upcoming direction.

Overall, the daily chart is one of consolidation since the beginning of the year.  As with any chart, pay particular attention to the price/200 day EMA relationship.  Right now, it tells us we're still in a bull market.