Mixed Investor Confidence for Mexico’s Long-Term Outlook

The COVID-19 pandemic has shaken Mexico’s financial sector and now, following credit downgrades and falling levels of competition in the national market, the confidence of investors appears to be slipping too. Today, El Economista reported on Credit Suisse’s confidence-gauging survey taken from a mixture of national and foreign investors.

While 21 percent of respondents believed that now is a good time for long-term investments in the Mexican stock market, another 45 percent considered it a “bad moment.” Of interest is the fact that 51 percent of investors based in Mexico believed it to be a bad moment to invest in comparison to 38 percent of those abroad, El Economista reported.

Like all other nations in the world, Mexico is struggling to shrug off the heavy impact of the pandemic that brought the global economy to a standstill. While different regions of the country are now beginning to reopen according to the country’s “traffic-light” system, national economic drivers, including tourism, heavy industry and oil and gas, were among the most affected sectors worldwide. This resulted in the International Monetary Fund forecasting a recession for the country in 2020 as the economy contracts by up to 10.5 percent. The 8.8 percent prediction from Mexico’s central bank, Banxico, is not much better.

Even before COVID-19, the country’s economy had been on difficult footing. A series of downgrades for Mexican bonds and the outlook of the country’s national oil company, PEMEX, had pointed towards economic difficulty. Mexico also fell out of the Top 25 most attractive countries for foreign investment as rated by the Kearney Foreign Direct Investment Confidence Index and it fell three places to 53rd in Switzerland’s Institute for Management Development’s World Competitivity Classification 2020. This is the lowest position the country has occupied since 1997.

Also reported in El Economista today is the slump that Mexico is seeing in consumption. According to INEGI statistics, 1Q20 saw the greatest fall in household consumption since 2009 – during the Great Recession – as goods saw a 22.3 percent reduction in sales nationwide.

Meanwhile, gross fixed investment reached its lowest levels since 1998. In a report, Monex Financial Group noted that “the decline in investment has been the main drag on growth. In April, it is evident that in addition to the climate of internal political uncertainty, the new risks caused by COVID-19 have maximized the magnitude of the losses in it.”

Despite the results in Credit Suisse survey, there are many investors that have pointed out the potential within the country. Results show that “nearly 60 percent of Mexican stocks have performed better than the MSCI Emerging Markets Index” and that 46 percent see a recovery to an improved position within Mexico next year, suggesting a rapid turnaround.