Mexico’s stock market is finally shaking off its lost decade

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Mexico’s stock market is finally shaking off its lost decade: Up nearly 20% year to date, the iShares MSCI Mexico ETF (EWW) is enjoying a stealth rally that shows no signs of slowing down.

“Nearshoring” is the current buzzword within trade policy circles, and Mexico is experiencing it in spades. Foreign direct investment is pouring in. The industrial park occupancy rate clocked in at 97% last year, a record high, as international companies are feverishly relocating their supply chains.

The Mexican Stock Exchange last reached its peak in 2013, succumbing to a dramatic falloff in oil prices the following year, and then had several years of weak GDP growth. Even after the latest run-up, EWW—which tracks the Mexican IPC index—is just getting to where it was eight years ago.

10-Year Chart
10-Year Chart

Emerging Export Platform

Things are very different this time, however. The new rally has nothing to do with oil, but rather a realignment in world trade that is substantive and enduring.

Mexico is being positioned to be a major export platform, one that is even more highly integrated into the global automotive and tech supply chains than it ever has been. Though a pronounced U.S. recession and more structural issues like cartel crime or energy policy could muffle this, most analysts see the economic momentum continuing apace for the next five years.

In other words, we are in the early innings.

Foreign investment into Mexico was torrid in 2022, with the automotive sector absorbing nearly 44% of the recently leased industrial square footage. Just last month Tesla broke ground on a new factory in Monterrey with production expected as early as 2024, but it was Chinese companies that gobbled up 79.5% of the factory space available.

Last year, investors from China, Taiwan, Japan, and South Korea moved 44 factories, production lines and distribution centers from Asia to relocate in 16 industrial parks in Monterrey, Saltillo, Mexico City, Tijuana, Ciudad Juárez, and Guadalajara.

Source: El Financiero

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