This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration. Need a new registration confirmation email? Click here
This column was originally published on RealMoney
on May 3 at 1:13 p.m. EDT. It's being republished as a bonus for TheStreet.com
I went to college in San Diego, and every spring break we went to Mexico, and we always had fun there. However, every year something bad would happen -- be it a broken leg or a new Ford Bronco getting stuck during low tide, and staying stuck when the tide came in. (I'm sure the fact that we were rowdy college students had nothing to do with either episode.)
Investors in Mexico have had similar ups and downs.
In 1992, the benchmark IPC went from 1900 to below 1300 in just four months, and the IPC was cut in half in 1994 in the face of the now-distant peso crisis.
But there have been some spectacular growth periods, too. The IPC is up 250% over the last five years, while the
S&P 500 is, are you ready, a whopping net unchanged. But during this five-year IPC rally, there have been some big corrections, including a 26% decline in 2002 and a couple of other 10% to 15% declines.
So what's driving Mexico? There are a couple of themes to this emerging market, starting with its abundance of natural resources. The U.S. gets roughly 16% of its oil from Mexico, and the country also has copper, silver and zinc.
Oil is very important to Mexico, so the commodity's high price is a huge boon to the country. But there are also risks, as it is an emerging market.
Oil production in Mexico has declined of late, and progress on new exploration has been moving very slowly. If the stock market starts to worry about production rates, a correction could be swift and severe.
Another risk is political. The country has a presidential election set for July 2, and former Mexico City Mayor Andres Manuel Lopez Obrador has led the polls for months, although it was reported late last week that he has lost his lead.
The risk created by a prospective Obrador presidency is that he has been likened to Hugo Chavez, and there is some concern about just how far to the left he leans. It would appear that skipping a presidential debate and the Chavez comparisons are what led to his poll numbers slipping, but he is by no means out of the race.
The IPC vs. the S&P 500
Source: Your Source Financial
There is no way to fully dissect all of the complexities of an emerging market in just one column, especially a market that is perhaps on the verge of a major transition. But for those investors willing to brave these risks and bet that Mexico can reverse the oil-production trend and not elect a Chavez ally, it is a very accessible country.
There is one ETF, the
iShares MSCI Mexico(EWW), two closed-end funds --
The Mexico Fund(MXF - Get Report) and
The Mexico Equity and Income Fund(MXE - Get Report) -- and 19
NYSE-listed ADRs, according to The Bank of New York.
For now, the economy is doing well, as the central bank estimates GDP growth for 2006 will be 3.5% to 4%. According to Jyske Bank, a Danish bank whose commentary I follow closely, 10-year bond spreads have been narrowing vs. U.S. 10-year Treasuries, which is usually a sign of confidence.
The IPC Index is up 16% this year, compared to just 5% for the S&P 500, and the trend appears to still be strong. It seems the capital markets have not yet priced in the concerns raised here, so I am either wrong or early.
But if you're trying to select which emerging-market countries to invest in, there are plenty of resource-rich markets to choose from with risks that aren't so tangible.
P.S. from TheStreet.com Editor-in-Chief, Dave Morrow: It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our
free trial offer to TheStreet.com's
RealMoney premium Web site, where you'll get in-depth commentary
and money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice --
try it now.
Here's your chance to pick the stock you'd like me to feature on my radio show May 11:
Agco Archer Daniels Midland
Nektar Therapeutics Novartis
REMEMBER to listen in on Thursday for my take on the stock that wins this poll!
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.