(Bloomberg) — Mexican President Andres Manuel Lopez Obrador was pilloried for his stinginess at the outbreak of the pandemic. His unwillingness to dole out anything but the bare minimum of emergency aid left millions of Mexicans to sink deeper into poverty.
Most Read from Bloomberg
Japan to Allow Non-Guided Group Tours From September
Trump Document Trove Bears Hallmarks of Closest-Held US Secrets
Powell Abandons Soft Landing Goal as He Seeks Growth Recession
There’s a New Recession Canary in the Coal Mine, Morgan Stanley Says
But now, at least some pay-off for those sacrifices is emerging. Mexico has maintained access to international bond markets at a time when many other developing nations find themselves cut off.
With US interest rates surging, investors have become very selective. They often flat-out refuse to buy bonds offered by countries with deteriorating finances. Thanks in part to AMLO’s austerity, Mexico is for the most part in sound shape. Its budget deficit and debt levels are below the median for its peers.
So when Mexican finance officials have tested demand abroad for the country’s bonds, they’ve found plenty of willing buyers. Just last week, Mexico sold 75.6 billion yen ($553 million), bringing the government’s haul from overseas markets this year to $9.47 billion.
Much of those sales, to be clear, were just to roll over maturing debt. But at a moment like this — when hard currency is suddenly becoming a scare resource across much of the world — even a simple refinancing of debt is an important step toward maintaining a steady flow of money into a country, shoring up the local currency and helping curb inflation. The peso is one of just a handful of currencies in the world to avoid sinking against the dollar this year as the Federal Reserve ratchets up interest rates.
AMLO’s “fiscal prudence then allowed the country to navigate this better,” said Carlos Legaspy, the chief executive officer of Insight Securities. “For debt investors he has been good: Credit worthiness has been maintained at an attractive rate of return.”
Mexican dollar debt yields about 7.6% on average, lower than the 8.2% for emerging-market sovereign bonds as a whole, according to JPMorgan Chase & Co. indexes. Mexico’s discount has widened this year and hovers near the biggest since late 2018, before AMLO took office. The extra yield on emerging-market dollar bonds over Treasuries has widened by 144 basis points during the past year, while Mexico’s spread rose at about one-third that pace.
The country has issued more hard-currency debt than any other in the developing world this year, accounting for 13% of total sales, up from an average of 4.9% over the past 10 years, according to data compiled by Bloomberg.
As governments around the globe rushed to spend to salvage their economies from the pandemic chaos, Mexico’s fiscal deficit only rose to 2.3% of gross domestic product from 1.8% in 2020. The median for similarly rated peers climbed to 5.8%, according to Fitch Ratings data.
Even after the three major rating companies cut Mexico’s score early into the pandemic, it kept its investment-grade status. In July, S&P Global Ratings boosted its outlook to stable from negative, citing Mexico’s fiscal prudence. Moody’s Investors service downgraded the nation by a notch, saying the pandemic would weigh on growth prospects in coming years.
Indeed, Mexico had its worst economic contraction in almost a century during the Covid crisis, and growth remains anemic. The median forecast of economists surveyed by Bloomberg is for an expansion of 2% in 2022. Meantime, the International Monetary Fund predicts the Mexican economy will grow just 2.4% this year, below the global estimate of 3.2%.
“They decided to keep fiscal discipline and deal with the consequences in terms of economic activity,” said Mauro Roca, managing director of emerging markets at TCW Group Inc. in Los Angeles. “Mexico has benefited now from keeping that fiscal discipline.”
‘Least Dirty Shirt’
It’s also far removed from the war in Ukraine, and unlike its neighbors in South America, there’s little political uncertainty clouding the country’s outlook in the near term.
Colombia’s new leftist President Gustavo Petro has promised to halt exploration of oil — the nation’s biggest export — sending yields on local bonds to record highs last month. In Chile, jitters over a referendum to approve a constitutional draft sent five-year credit-default swaps soaring to briefly surpass lower-rated Mexico for the first time ever. Meantime, investors are closely watching an upcoming election in Brazil that will set the course for government spending for years to come.
Despite all that, creditors get a juicier reward for holding Mexican debt than that of its major Latin American peers. The nation’s spread over similar US Treasuries is about 4 percentage points, higher than that of Chile, Peru, Brazil and Colombia, according to a JPMorgan gauge.
“It’s sort of like the least dirty shirt of the region,” said Valerie Ho, a portfolio manager at DoubleLine Group in Los Angeles.
(Updates first chart with latest market data and yield moves in seventh paragraph)
Most Read from Bloomberg Businessweek
Mark Zuckerberg’s Metaverse Pitch Is Falling Flat
YouTube Went to War Against Terrorists, Just Not White Nationalists
Women Who Stay Single and Don’t Have Kids Are Getting Richer
Amazon Is Still Trying to Digest Whole Foods
The Secret Sauce at Hot Chicken Takeover: Its Unique Workforce
©2022 Bloomberg L.P.
Related Quotes
(Bloomberg) — Most Read from BloombergJeremy Grantham Warns ‘Super Bubble’ in Stocks Has Yet to BurstTrump Documents Bear Hallmarks of Closest-Held US SecretsJapan to Allow Non-Guided Group Tours From SeptemberPowell Abandons Soft Landing Goal as He Seeks Growth RecessionTrump Records May Have Been Moved to Obstruct Probe, DOJ SaysTurkey’s economy lurched forward at a faster rate than expected, as the highest inflation in 24 years prompted consumers to bring forward purchases in anticipation of
Cathie Wood's ARK Invest cut its stake in Nvidia ahead of the graphic chipmaker's results last month. Now it's snapped up the stock which has dropped to a 52-week low.
Ready to go bottom fishing again? Any good angler can tell you that there’s plenty of good eating just waiting at the bottom of the creek, or the pond, or the lake. The same concept also holds for stocks – investors can always find some quality equities down at the market bottoms. Stocks get down there for a multitude of reasons, and the reasons aren’t always related to any fundamental flaw in the company or its share trading policies. Sometimes, it’s some idiosyncratic business move, or over-re
Yahoo Finance anchors discuss Nvidia stock after U.S. officials imposed a new license requirement for its exports to China.
Yahoo Finance Live anchors discuss second-quarter earnings for Okta.
A “superbubble” appears dangerously near its "final act" after the recent rally in U.S. stocks lured some investors back into the market just ahead of potential “tragedy,” according to Jeremy Grantham, the legendary co-founder of Boston-based investment firm GMO.
The S&P 500 broke below 4,000 this week, for the first time since the end of July. It has investors wondering: Does this mark the low point of a roller coaster ride? Stocks rose all last year, fell from January to June, rallied from July to mid-August, and now are falling again. According to Wells Fargo strategist Paul Christopher, it’s evidence that the stock rally is sputtering to a halt. Christopher writes that “Cracks in financial market liquidity are appearing,” and says of the S&P 500, “3,
Cathie Wood seems to have used Nvidia tough day to buy more stock in the graphics chip giant. Nvidia (ticker: NVDA) stock dropped 7.7% on Thursday after the company disclosed new licensing requirements for selling advanced semiconductors to China imposed by the U.S. government. Nvidia has said up to $400 million in third-quarter sales were at risk.
Making money in the S&P 500 got tougher again in August. But not impossible. All told, had you invested $10,000 in January and reinvested your money into the top stock currently in the S&P 500 each month this year, including Constellation Energy in August, you'd have $95,509 now, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
(Bloomberg) — Broadcom Inc., a chipmaker that supplies some of the largest companies in the tech industry, gave a strong sales forecast for the current quarter, allaying fears that spending on internet infrastructure is slowing. Most Read from BloombergLukoil Chairman Ravil Maganov Dies After Falling From Hospital WindowPutin Brings China and India to Russia for War Games Defying USHong Kong Officials Target End to Hotel Quarantine in NovemberGlobal Bonds Tumble Into Their First Bear Market in
Tough times are coming. But maybe not for investors.
Oil stocks and chemicals dominate this list of today's fastest-growing stocks, all eyeing 103%-1,230% EPS gains this year.
First Eagle Investments is an independent, privately owned asset management firm dedicated to serving the needs of individuals and institutions worldwide as well as the financial professionals that advise them. Recently, the fund published its second-quarter 2022 investor letter – a copy of which can be downloaded here. The fund believes that the return to […]
The coffee giant’s hiring of Laxman Narasimhan comes months after former head Howard Schultz temporarily took over to steer the chain through rising costs, a unionization push and challenges overseas.
The U.S. government last week blew a $400 million hole in Nvidia Corp.'s budget amid a clampdown on selling advanced chips to China and Russia. The semiconductor company announced Wednesday that federal officials last Friday informed it they have put in place new export controls that bar Nvidia from selling its latest data center chips in China or Russia without a license. Although Nvidia continues to try to sell its less advanced chips in China, the government's practical ban on selling its latest chips there could cost it $400 million in this quarter alone, it said.
Top trending stocks in after-hours trading on September 1, 2022.
SPAC-related stocks are deeply out of favor. But some selling pressure might ease after a SPAC ETF finished its liquidation.
Billionaire money managers have used the sizable market downturn to buy these seven stocks at a perceived discount.
These companies have felt the global impact of a snarled supply chain and rising costs more than most.
The Dow Jones, which is comprised of 30 multinational companies, has likely outperformed the other major indexes because it's packed with profitable, time-tested businesses. What follows are three Dow stocks that are nothing short of screaming buys in September. The first Dow stock that's begging to be bought by long-term investors in September is semiconductor stock Intel (NASDAQ: INTC).
About Author
