Enrique Covarrubias
Chief Economist
Grupo Financiero Actinver
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View from the Top

Saving Money not the Same as Investing

By Gabriela Mastache | Wed, 12/25/2019 - 11:15

Q: How do the different parts of Actinver’s product portfolio complement each other?

A: Grupo Financiero Actinver is a 100 percent Mexican group with 25 years of experience. Actinver’s goal is to become the main financial consultant for people and companies. The group has three main areas: private banking, through which we provide investment and heritage advise; asset management; and investment banking. Actinver also has the largest brokerage house in the country by number of accounts, with over 65,000, for a 22 percent market share. In terms of assets under custody, our brokerage house is the fourth-largest in the country, and we are growing at an 8.8 percent rate, while the rest of the industry grows at 5 percent.

As a fund operator, we have over MX$170 billion under management, which makes us the fifth-largest in the country and by far the largest operator that is not a commercial bank. Though we are very good in understanding and managing Mexican funds, we have also made significant strategic alliances in the past years with the best foreign fund managers, including Axa Investment Management and Legg Mason.

Q: How would you describe the country’s investment culture?

A: An important challenge we have in Mexico is that while there is a culture of saving money, saving is not the same as investing. In this sense, Actinver has an important responsibility to develop this investment culture. In this regard, there are three significant efforts that we make. First, we hold a series of conferences regarding the economic and investment outlook. Second is our “Reto Actinver” program, in which university students participate in a real investment platform where they learn about the markets and investing on a daily basis. They see information in real time, but invest with what we call “Actipesos,” which allows them to take risks and learn in a safe environment. We also offer workshops, conferences, and social media campaigns to make people more aware. The third effort is our Financial Education Center that provides talks on basic subjects such as how to save money.

Q: What is the current investment environment in the Mexican market?

A: Starting in 2016, we have seen significant volatility from events such as Brexit, the US elections and Donald Trump’s victory, to which the normal uncertainty of any electoral cycle in Mexico was added. In this volatile environment, Bank of Mexico increased the reference rate to 8.25 percent, leading to lower risk-taking in the markets. While a high reference rate decelerates the economy, from an investor’s perspective it makes for a very attractive opportunity in government bonds. However, we have reached an inflection point and the central bank has started to lower rates.

In terms of investing, the BMV has not reflected the value of Mexican companies, which have made significant inroads in becoming more global. Commodities are an investment option, but they are riskier and more long term. Both gold and other commodities reflect industrial activity, and offer interesting opportunities.

Q: What is impacting the performance of the Mexican economy?

A: The country’s economic model is in the midst of change, and like any other change it requires an adaptation process. This reflects in several aspects, including the government’s under-spending. But one of the main reasons why Mexico is experiencing low economic growth is not the governmental change, but the uncertainty associated with the USMCA. This uncertainty has stopped FDI and with less FDI there has been a reduction in private national investment, which has been exacerbated by the reduced public investment.

The USMCA is needed in Mexico because it provides important juridical certainty to investments. We have used NAFTA for many years as a substitute for an adequate rule of law. On a national level, the states that are growing the most are those that have made a greater effort to improve their rule of law. Going forward, we need to work on improving juridical processes and eliminating corruption to provide certainty for investors.

Q: How is Mexico being impacted by the trade war between the US and China?

A: An important element that was not clearly seen on a global level is that in 2016, most advanced economies experienced an industrial recession. It was not very noticeable because in these economies, services have the largest market share. It is no coincidence that in 2016, there was a surge in anti-systemic movements in advanced economies. In this sense, the anti-systemic discourse became very popular. As part of the campaign promises of this anti-systemic discourse, we saw the beginning of trade wars. In the case of the US, it took them a long time to discern who and how they were going to fight that trade war.

In this sense, China has been for many years a competitor to the US in terms of production and technology innovation. Mexico is a commercial partner. A trade war against Mexico is not against a competitor, but against its best commercial partner. In 2019, what we saw was a turnaround in the trade war. When the US stopped importing products from China, US factories realized they needed the help of its commercial partners. The harsher the trade war is with China, the more likely it is that Mexico will fill in the gap left by Chinese exports.

Trade wars and the NAFTA renegotiation caused significant friction, and for some time the economies uncoupled. But the best strategy going forward is that once the trade wars end, with or without an agreement with China, the conclusion is that the Mexican economy will be fully integrated with the US economy in the manufacturing sector.

Q: What are Actinver’s economic expectations in the medium term?

A: To reactivate growth, we need higher governmental spending, the ratification of the USMCA, a normalization of monetary policy and stability in public finances. We also need to avoid a downgrade of PEMEX’s credit rating. Mexico is a country that traditionally has grown at a 2 percent rate, and in the medium term, everything points to growth of the same magnitude. However, the country needs more to achieve 4 percent growth. For this, we need to make public spending more efficient, we need to reactivate the commercial relationship with the US, and we need domestic consumption to maintain its levels and not decelerate.

 

Grupo Financiero Actinver is a leading investment institution, and a 100 percent Mexican group created in 1994. The group has close to 2,000 collaborators and more than 140,000 clients

Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst