Here is the clip from CNBC with more detail on my investment views for Mexico.
We posted a chart last week as a preview for yesterday’s show which highlights Mexico's complete outperformance (+59%) to the overall EM MSCI index.
The macro thesis behind Mexico’s economic strength is supported by the reform agenda of President Nieto, especially in the crucial energy sector.
Combine economic reform with the strong export market to the USA and Mexico may have domestic and external factors clicking in 2014. Inherent in this thesis, the Mexican Peso (MXN, quote) will be a tailwind for investors in 2014 as one of the best positioned currencies in a weak EM FX market backdrop.
MXP strength based on better export growth to the USA, a rebound in GDP growth and optimism around the energy reform.
A stronger currency helps Mexican companies who have revenues in MXP but a cost base that is heavily in USD.
Conversely, a stronger Peso hurts companies who have Dollar revenues (like exporters) and costs mostly in the local currency.
A pair trade that could minimize directional exposure to the country but make a bet on improving sector dynamics in one case and regulatory pressure in another is to be long Televisa (TV, quote) and short America Movil (AMX, quote).
Media is better positioned to benefit from cyclical rebound in the economy and return of government ad spending.
In addition, Televisa has exposure to strong spending in US Hispanic ad market. Meanwhile telcos face continued negative regulatory news flow in 1H14, and Carlos Slim appears intent on diversifying his business risk to outside of Mexico.
A final caveat to the entire Mexican investment thesis is that this country is not terribly cheap on valuation.
With a forward PE of 17.6x Mexico is not cheap on a historical basis or to asset class peers (10.5x forward). Any potential negative impact from fiscal reform may not be priced in.