Mexico has the brightest future in years says J.P. Morgan Asset Management

2nd April 2013

Mexico’s stock market has the brightest future it has had in years, argues J.P. Morgan Asset Management.

In a note issued today (2 April), Dan Morris, Global Strategist at J.P. Morgan Asset Management argues that political reforms look set to liberalise the economy confounding some pessimists who had worried that that the election of Enrique Peña Nieto to Mexico’s presidency could herald a return to the past.

Morris says: “As leader of the PRI (Partido Revolucionario Institucional), which ruled Mexico for over 70 years, many feared he would reinstate the party’s traditionally protectionist policies. Instead he has surprised since his inauguration in December by promising to liberalise the economy, to foster greater competition in protected industries and even to open up the country’s state-controlled oil industry to outside investment.”

Comparing the recent performance of Japan and Mexico, Morris points out that the two markets have performed very differently recently.

“The reaction of the markets to the changes in the two countries, however, has been very different. Since global equity markets bottomed in March 2009, Mexico has outperformed the broad MSCI All Country World Index (ACWI), the US and Brazil. But it has underperformed recently. Japan’s equity index has gained 44 per cent since mid-November while Mexico’s has advanced just 8 per cent, less than the 15 per cent return on the ACWI (price change in local currency terms)”.

However the challenges facing Mexico and Japan are starkly different.

Morris says: “The challenges facing the two countries are, of course, quite different and the responses in Mexico may only generate returns later on (and some may even hurt in the short-term). For example, the Mexican government hopes to improve the ossified education system, which ranks below average according to the OECD’s Program for International Student Assessment (PISA). The recent arrest of the previously untouchable head of the teachers union, who had been in place for 23 years, indicates the government’s determination, but it will be years before the economy benefits.”

The Mexican equity market does face some structural challenges including the fact it is less diverse than some of its regional neighbours.  Morris says: “While the market capitalisation of the MSCI index is roughly the same size relative to GDP as it is for Brazil, it is not as diverse. Brazil’s main index has 81 members with all the main sectors represented, but Mexico’s index has only 26 members and four sectors have no listings at all: energy, health care, information technology and utilities. The lack of members in the energy and utilities sectors is all the more surprising given that Mexico is a major oil producer. The government’s intent to liberalise the energy sector — though stopping short of even partly privatising national oil producer Pemex — is one of its greatest challenges, but also the one that offers the greatest opportunity for development of the economy and the stock market in the future.”

The note also points out the reluctance of Mexican banks to change though this may again change with the financial crisis.

“The underweight of the financial sector relative to global markets highlights the comparatively small role the banking sector plays in the country. Due to a previous financial crisis, the banking sector is reluctant to lend (not so different from Europe, in fact). Though the crisis occurred years ago, private sector credit today represents just 26 per cent of GDP compared to 61 per cent for Brazil (last data from 2011). This is another area where the government wants to see change. Though the benefits for the economy may take time to appear, expectations for profitability in the banking sector are already beginning to rise.”

“In the same way that the country’s political landscape was monopolised for many years by one party, parts of the economy have been dominated by a few companies, in particular in the telecommunications and media sectors. The government has vowed to open them up to more competition. While this will help the economy it will also lower returns for the existing players. While earnings forecasts for the market overall are quite strong, those for telecommunications, for example, have dropped dramatically. The parallel drop in prices for some of these companies explains much of the index’s recent poor performance.”

Morris concludes: “The future for Mexico’s economy is the brightest it’s appeared in years, but to profit from it investors will need to do more than just track the index. Look to future IPOs and non-dominant companies in currently mono- or oligopolised sectors to realise the potential.”

33 thoughts on “Mexico has the brightest future in years says J.P. Morgan Asset Management”

  1. Andy Zarse says:

    Hi Shaun, the imputed rent figures appear about as relevant as another metric I have just invented called Imputed Monster Munch. This describes the implied national spend and impact on GDP of the delicious corn-based snack (not including Pickled Onion flavour as they are nasty and nobody likes them) if other forms of nutrition such as meat, dairy and vegetables were not available…

    1. realfinney says:

      There a far larger omission from the statistics Andy: if the monster munch monsters lived in Britain, considerable expense would be incurred procuring Monster Munch for Human Sacrifice Substitution (MMHSS). So we should definitely start inputting a figure for what this would be in the event of a UK monster infestation.

    2. dutch says:

      I’ve often thought they should include imputed taxi fares for if you’d taken a cab instead of driving.

      Monstermunch sounds preferable.

    3. Forbin says:

      hi andy

      its funny that HMG decides on what is a “substitute ” in making its calculations .

      For instance it assumes if Heinz Tom ketch goes up too much I’ll buy the cheaper supermarket brand but does not factor in that said super market brand is foul mess and I’d cut down or go with out ….

      Imputed Monster Munch sound a good idea but HMG will use the Pickled Onion figure for CPI and then “impute” that the other flavours are an “enhancement” or that said Pickled Onion you will buy ,as its cheaper (as no one wants it) because you’er “rational” ( despite the fact the said substituion costs more because you won’t eat it and had to buy the better flavours afterwards….. ) .

      he he

      All good fun 😉


    4. Anonymous says:

      Hi Andy

      You remind me of the corn based snack that always seemed to taste so good after a glass of beer or two when I was a student. I am sure that it had enough E numbers so run any printer out of ink which listd them!

      How did you get on with the BBC this morning?

      1. Andy Zarse says:

        I have a bad cold, lost my voice and sadly got pulled. So I missed my big chance, and it was with Steph in a Chichester chocolate factory! I didn’t miss her slightly weak line of questioning when I watched my understudy, nor the ridiculous hairnet he was obliged to wear!

  2. Anonymous says:

    I have a zero hours contract.

    The expected hours are less than 120 per annum, at around 12 hours for each week worked. If this is all I do there is obviously no tax to pay.

    In the “good old days” this would probably have involved no contract with cash payments. It is HMRC (and others) bureaucracy that has created the zero hours contract.

    1. Anonymous says:

      Hi Kit

      I am intrigued, if you have a moment I would appreciate it if you could explain further what the UK HMRC has done to affect this?

      1. Anonymous says:

        It is an attitude rather than a specific requirement from HMRC.
        IMO casual employment has become formalised through ZHC as the tax authorities crack down on casual work that in the past may have been used to avoid PAYE and both NIs.
        The employer is therefore protected against long expensive investigations if all those that would have been cash in hand very part time workers are forced to be part of an official payroll system. It is a reminder that the state considers that it owns all our labour.

  3. dutch says:

    Great piece as ever Shaun,I thought I was going to blow a gasket until I read
    ‘However total numbers ignore the issue that there are more people in the UK so we need to go to a per capita basis.’

    Bang on.

    The USA U6 definiton is a way better way of measuring unemployment as it includes those seeking full time work.

    1. Anonymous says:

      Hi Dutch

      Whilst the US labo(u)r market statistics have their own flaws (the 2 separate surveys often give quite different answers) the U-6 definiton of underemployment is a clear success I think. I do my best to give it publicity as it is much more useful that the ordinary (U-3) unemployment rate.

      For those unaware of U-6 here is the definition.

      “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force”

      And the answers to the obvious questions.

      “Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.”

  4. Kurt says:


    Good article on zero-hour contracts and i agree with your conclusion that we know too little about the area and that some of the worse scaremongering is untrue.

    One of the problems is that zero-hour contracts is a new term for something that has been around for a long time. Casual workers have always been a valuable part of the tourism industry and one or two years ago these people would have classified themselves as part-time workers if they had been asked.

    I really appreciated the ONS research as it started to shed some light on an area where there had been some wild speculation. A lot of the findings of the ONS research can be explained if you start from the perspective of a casual worker in the tourism industry. Eg.,

    “A lot of ZHC workers are young students”
    Students increasingly need work to pay their fees but can’t guarantee when they will be available over the year due to assignments etc

    “A majority of ZHC workers are female”
    A lot of the casual work jobs are for things like waiting on tables, cleaning and being a host – which tend to be jobs women apply for. Also, many woman undertake family care so casual work suits their other commitments.

    “ZHC work is often low paid”
    This is because casual work is predominantly the entry-level jobs – a restaurant still needs a chef and a maître d’ regardless of the number of guests but the number of waiters needed is flexible.

    “Most people are happy with their ZHC”
    Most people on ZHC in the tourism industry don’t see their job as their main priority – eg., students, and people supplementing their income/annuity. The flexibility (they can always just say that they are unavailable to work when an employee asks) suits their lifestyle and priorities. And any good employer will say “fine” and simply ring someone else.

    “There are 1.3m ZHC where there was no work for two weeks”
    Because of the seasonal nature of tourism and the timing of this survey, a lot of people will be on the books of a company but not have been called at this time of year.

    Obviously everything is not rosy with ZHC and there are some companies that are exploiting their staff through their use – but we need better research to sort the wheat from the chaff on this. There is an assumption by some commentators that a ZHC, by definition, is exploitative and this simply isn’t the case.

    Kurt Janson

    1. Anonymous says:

      Hi Kurt

      Thank you and welcome to my part of the blogosphere.

  5. majestic whine says:

    Hi – I’ve only just stumbled across this excellent site so apologies if I am asking something that has already been covered.

    The imputed rent is an ‘interesting’ metric and it got me wondering just how much of GDP is tied to the price of property. As well as this imaginary rent – does GDP also include real rent, new mortgages, remortgages, property sales, estate agent commissions, insurances on the loans and more? If so then it becomes quite clear why (apart from keeping their own property portfolios above water) politicians are so obsessed with stoking property inflation.

    Does anybody know how much of GDP is directly affected by property?

    1. Anonymous says:

      I’d love to see a graph of growth since 1997 together with what % of that was cash from remortgaging / imputed rent / increasing private debt through mortgages.

    2. Anonymous says:

      Hi Majestic whine

      Thank you and welcome to my part of the blogosphere. That is a good question and would be best answered from the income method of measuring GDP. Unfortunately we do not get a lot of details on it but I will make a mental note, as like happened here with imputed rent ,one comes across useful and indeed vital numbers doing research into other matters…

      1. Anonymous says:

        Shaun, transaction costs like estate agents’ fees and survey fees associated with purchase and sale of homes would be part of residential construction in gross fixed capital formation.

        Mortgages and remortgages would be covered off by FISIM (financial services indirectly measured). in the National Accounts. I don’t pretend to understand how this is calculated. It is not only complicated, but there have been non-trivial revisions both in the international standard for its calculation and the way countries actually calculate services of financial institutions in recent decades. However, only part of mortgage interest would be included in the SNA since the mortgage funds that a bank lends come from deposits on which it pays interest.

        I have never seen any SNA aggregate for all categories related to property such as majestic whine suggests. It would be interesting to know what its share of GDP might be. Andrew Baldwin

  6. therrawbuzzin says:

    Hi Shaun.
    The imputed rents are a nonsense. Worthy of ridicule. Chicanery and shenanigans.
    For one thing, if every home in the UK actually WAS up for rent, it would drive the price through the floor.
    Why not imputed car rentals?
    The people who I know, who are on zero-hours contracts, accept it because they cannot get other work, and their partners earnings mean they would not get benefits.

  7. Paul C says:

    Zero hours contracts. No one seems to have clocked that Govt employment legislation known as tupe has largely driven the appearance of zero hours. So unrealistic are the transferance historic benefits (often former public sector) that ZHC are a marketplace response. Politiwans can wring their hands about ZHC but it’s of their own making. Those poor folk Who found that their manual labour job effectively lost because no one would hire them under tupe now get offered self-employment or ZHC. Check security guarding if you want confirmation, very few are actually employees.

  8. therrawbuzzin says:
    If the govt. needs to starve people into taking these contracts, then I’d suggest that gives a fair assessment of their popularity.

  9. Anonymous says:

    There are legitimate potential advantages for employers. If you hire day agency staff, chances are the agency adds between 50 and 100% costs. If you deal direct with temporary employees, you save those costs. Also you might offer a good worker a full time job – again saving agency fees and reducing the risk of hiring an unsuitable or lazy employee.

  10. dutch says:

    22 hours=a full time job.You gotta laugh.

    Full time job to me means you can support yourself without state aid.

  11. Anonymous says:


    Totally agree NI should always be paid for added flexiblity of zero hour contracts.
    I understand Next employees limited to less than 20 hrs per week to avoid NI contributions – lots of young women with work but no pension contributions – still its fashion!

  12. dutch says:

    I think it includes some estimates for repair bills as well.

    Presuming too that we don’t overlay a chart of actual rents which have risen nowhere near as much since 2008.

    ALso,one does wonder whether with more people renting,whther we should be seeing a hit on imputed rents as the number of owner occupiers gets hit.

  13. Anonymous says:

    Hi Forbin

    The simplest bit is the definition of imputed rents.

    “the amount an owner-occupier would pay to rent their own home

    The actual amount added to GDP is a net figure as Ditch implies below because an “estimation of maintenance and repairs” is subtracted.

    Where there has been something of a shambles is in inflation measurement where there is something awkward. House Price Inflation is say 8/9% perhaps overall but the H of CPIH is running at 1%. Ooops.

    Never mind they come to the same answer said the Mad Hatter as he popped up to set the rules…

  14. dutch says:

    sorry Forbin,I thought you were quoting a govt definition.

    22 hrs is fine if you’re getting decent money,I jsut feel you’d be taking a liberty calling 22 hrs full time on NMW

  15. Forbin says:

    Hmm, in London that would be 50K a year ?

    ok , joking ( maybe thats too small for Chelsea/Kensington ! ) but if housing ,fuel and food are factors then where you are will affect that rate of pay

    extreme other end I presume will be NI .


  16. Forbin says:

    HMG definition is woolly

    What is a part-time worker?

    A part-time worker is someone who works fewer hours than a full-time
    worker. There’s no specific number of hours that makes someone full or
    part-time, but a full-time worker will usually work 35 hours or more a

    I gave suggested figure for use with Zero hour contracts , I gave a reasonable answer I think .

    of course if you’re a Company director we have many of those working part time and earning humungus pay.

    Again I guess its who you are thats counts ….


  17. Forbin says:

    hi dutch

    I’d guess that its based on an imputed rent for housing thats had its mortgage paid off , or you need to add the cost of the mortgage to the estimate of repair bills .

    HMG tax office probably has the repair bills for the rented sector as that would be classed as expenses against tax ( I actually dont know yet) so could use that figure to “impute” repair bills for privately owned housing.

    I agree the “impute” should be along the lines of what is rented but thats affected by housing purchase costs – and we all know thats been pumped.

    I’m surprised HMG hasn’t though of taxing people of the difference between what they paid for their house and what its worth now … treat it as income . You’d have to then get a mortgage to pay the tax ? thus making the Banks happy again ( more income !) but of course if you already have MER ‘ed yourself to the hilt then

    1, you spent or are spending that money – good for the economy

    2, paying the banks to have roof over your head

    3, may have used the money to give to your children – they fritter it away or use it to buy their house/s

    Banks win again of course.

    What could go wrong ?


  18. dutch says:

    ‘I’d guess that its based on an imputed rent for housing thats had its mortgage paid off ,’

    I’d always assumed it was calculated on all OO housing not just the ones paid off.
    You do raise the issue of whether those with mortgage paid off should be treated differently to those who haven’t.
    I await a more enlightened mind than my own

  19. Anonymous says:

    Hi Forbin and Dutch

    I would just like to add that the ONS definition of full-time work is even woollier. On their questionnaire you are asked if you consider yourself to be in full-time work or not.

    Or putting it another way there is no standardised definition in UK labour market statistics…

  20. Anonymous says:

    Hi Chris

    For a company like Next which is doing well that seems particularly poor behaviour to me. Is there anywhere you know of where this is documented?

  21. Anonymous says:

    My apologies I have been unable to locate the reference ( Guardian article on low pay/hours I thought) so please treat my comments as hearsay and ignore/delete on your blog.
    Lesson learned to engage brain before responding!

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