may sound like an underground Latino punk rock band whose songs can be downloaded from
But don't bother searching for them.
The term refers to a six-year cycle of Mexican economic crises, which have followed, more or less in lockstep, every Mexican presidential election since 1976. With the next poll scheduled for July 2, many Mexicans and would-be investors in the country are asking: Is the curse about to return?
Probably not, although that doesn't mean Mexico looks particularly promising for investors in the next couple of months.
Mexico's stock market has fared poorly over the last couple of months, reflecting its increasing synchronicity with U.S. markets. The key
index of leading Mexican shares climbed 15% from the beginning of the year until early March, then plunged 47% before finding a floor a few weeks ago, a trajectory that neatly parallels the
performance this year. The IPC is now up 13% since May 26.
Reflecting this roller-coaster ride, Mexican plays available to U.S. investors have floundered this year. There are two closed-end Mexican funds traded in the U.S., as well as an exchange-traded fund that tracks the
Morgan Stanley Capital International Mexico
index. The closed-end
is down 20% for the year, although it has climbed 11% in the last three weeks.
Mexico Equity and Income Fund
has bucked the trend and is up 9% this year, although it is down 19% from a March high. (However, in April, the directors of the fund proposed liquidating and dissolving it; shareholders will vote on that proposal in July.) Finally, the exchange-traded fund,
iShares MSCI Mexico
, has slid 15% this year, although it is up 10% in the last three weeks.
Of course, investors also can play Mexico through regional, open-ended Latin American funds. The two best performers in that category are the
Templeton Latin America fund, which is down 3.1% this year and has 31% of its assets in Mexico, and the
Excelsior Latin America fund, which is down 3.7% this year and has 41% of its assets in Mexico. The Templeton fund has an expense ratio of 2.35% and requires a minimum investment of $1,000, while the Excelsior has an expense ratio of 1.55% and requires a minimum investment of $500.
Until recently, investors have discounted the impact of the Mexican election on the markets, and of the so-called
curse. They pointed to the profound changes in the country since the last time it struck -- the 1994 peso crisis -- including a floating currency, an improved banking system, a sharply reduced current account deficit, increased foreign direct investment and an open trading regime cemented with the
North American Free Trade Agreement
. Overall, the Mexican economy looks pretty good, with expected GDP growth of 5% this year. Besides, it was assumed that
, the ruling party's candidate, would win easily, removing the uncertainty that so unnerves investors.
"Macroeconomically, 2000 is just worlds away from 1994," says James Upton, Latin American equity strategist for
Credit Suisse First Boston
. "We're not on a border of a crisis."
The political situation is the wild card. And it has gotten a little wilder over the last few weeks with the main opposition candidate,
, making strong gains in the polls, passing Labistida in some. Indeed, the race is now neck and neck. A win for Fox would be historic: Labistida's party, the
Institutional Revolutionary Party
, has been in power for 71 years.
The fear among investors is not so much a victory by Fox. His economic program is not that different from Labistida's and no one expects he would unravel current
President Ernesto Zedillo's
market-friendly policies. Instead, investors are concerned about a narrow victory by either candidate, which would then be contested by the loser. That would trigger a political crisis that could drag on for months.
In addition, some Mexicans are wary of the
curse, convinced that despite government statements confirming the health of the market, it is coming. Indeed, a recent poll showed that 60% of Mexicans anticipated a post-election crisis. Nevertheless, nervousness about the market "is more based on psychological fears," says Mexico City-based Hector Chavez, chief Mexico economist for
However, "the number one factor is the effect of the U.S. interest-rate hikes" and the effort to engineer a slowdown of the U.S. economy, says Chavez. Mexico sends 80% of its exports to the U.S., and a rough landing here will bring Mexico down with it.
In short, the next couple of months are likely to be rough for Mexican markets until the political situation becomes clearer and the
next moves are out of the way. Despite an overall sound economic situation, the country could suffer, especially if confidence weakens and local investors steer clear of the markets. Then, the
curse would not be so much a curse as a self-fulfilling prophecy.
David Kurapka's Global Portfolio column appears Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at