(Bloomberg) – For years, Mexico was a forgotten country Among investment bankers, Brazil has assumed a perpetual laggard. but not anymore. Suddenly, Wall Street is convinced that the country is going to take off if it doesn’t miss the opportunity.
Bank of America, Morgan Stanley and Goldman Sachs Group predict that investment banking revenues in Mexico will increase this year. Last year the main local bond underwriter, Banco Sanchez, said it would invest US$1.5 billion in strengthening technology for retail clients. JPMorgan Chase & Co. CEO Jamie Dimon said his bank’s capital has “doubled or tripled” in the country over the past six years and he sees “fantastic” growth prospects.
Mexico is going through a great moment, with the potential to benefit for decades from the Covid-era near-shoring boom that is causing the country to set up new factories for everything from laptops to cars. Wages are rising and employment is abundant, especially in the industrial heartland. Foreign direct investment helped make the peso one of the world’s best-performing currencies in 2023. Public finances are strong compared with other developing countries—debt relative to the size of the economy is well below the average for countries that have similar credit ratings—and businesses are cautiously optimistic about the main candidates in presidential elections in June.
“The story is real”Emilio Romano, director of Bank of America’s Mexican subsidiary, said in an interview in his office. “We have to have this structural change to grow Mexico at a rate we haven’t seen in decades.”
However, those who have been following Mexico for a long time know that the country has a history of missing out on big opportunities, with economic growth of only 2% annually since the North American Free Trade Agreement went into effect. In 1994, well below the emerging market average. According to Bradesco BBI strategist Rodolfo Ramos, The country’s capital markets are underdeveloped Compared to his counterparts, the next President will have to promote new policies to attract investment, especially in the clean energy sector.
However, Mexican markets are bullish right now. Bank of America, which led investment banking revenues in Latin America and Mexico in 2023, is seeing a flood of big mergers and is expected to triple to $1.2 billion in 2023, according to London-based research firm Dealogic. There will be an increase in share issuance during the year. Corporate bond sales hit the highest level since 2015, and bankers see a solid start to 2024.
Investment banking has greater importance in Mexico
Mexico’s share of investment banking revenues in Latin America increased to 20% last year, from 13% in 2022, and trends indicate that growth will continue. The country is mainly taking market share from Chile, Colombia and Argentina, where expansion was much slower last year.
Brazil generates three times as much income from investment banking as Mexico, and remains a much more dynamic economy. But Mexico is showing signs of recovery and is projected to have four consecutive years of growth by 2025, in which the country’s growth will exceed Brazil’s.
Bankers view Mexico very favorably
At Bank of America, Mexico is set to record the largest revenue growth in the region in 2023, according to Augusto Urmaneta, head of the North Carolina-based bank’s Latin American operations.
BofA plans to continue investing “to support both our global clients who want to do more there, and our Mexican clients who see growth opportunities,” Urmaneta said in an interview. He is optimistic about changes in capital markets laws that will make it easier to set up hedge funds and reduce the bureaucracy required to list stocks.
“This is likely to act as a catalyst for further trading activity,” he said.
JPMorgan’s Dimon was equally upbeat during an interview with El Financiero Bloomberg TV in November.
“If I had to pick a country, this might be the number one opportunity,” Dimon said.
Morgan Stanley expects the surge to continue next year, even if presidential elections in Mexico in June and the United States in November create some volatility.
“We have seen Mexico emerging very strongly in terms of agreements,” said Alessandro Zema, co-head of investment banking for Latin America at Morgan Stanley.
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Investment fund specialized in real estate They made up the bulk of stock sales in Mexico last year. In June, industrial real estate developer Corp. Inmobiliaria Vesta SAB raised $446 million with a share sale in New York, the largest sale by a Mexican company in the US in more than a decade. In December, it raised another US$149 million. Transportation and logistics company Traxion, for its part, sold $254 million in an additional offering in Mexico in August.
The initial public offering of Mexican industrial property trust Fibra Next, which postponed a sale of up to $1.2 billion last year after a last-minute issue over the company’s tax status, is likely to take place this year. This is expected to be the country’s largest IPO since 2018.
corporate bond sale They should maintain momentum into early 2024 as companies increase spending, according to Felipe García Asencio, CEO of Banco Centro’s Mexican subsidiary. Last year, emissions were led by some of the country’s biggest companies, such as billionaire Carlos Slim’s America Móvil SA and food maker Grupo Bimbo, owner of Sara Lee brand breads.
As capital markets pick up, investors will likely focus on “Large, successful and well-established brands”says Facundo Vazquez, head of capital markets for Latin America at Goldman Sachs. Startups and small tech companies are no longer a priority, as investors want “size and liquidity.”
Investors also like the central bank’s efforts to curb inflation, Vazquez said. After moving quickly to raise rates in 2021, Mexico is expected to adopt one of the region’s most cautious approaches to reducing borrowing costs, demonstrating a commitment to price stability.
“They’re going to do whatever is necessary to deal with inflation,” Vazquez said. “That’s another reason why everyone is excited about Mexico.”
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Translated by Paulina Munita.
Original Note: Wall Street’s optimism lifts Mexico from race to contender
-With assistance from Felipe Saturnino, Kevin Cimaucci and Paulina Munita.
©2024 Bloomberg L.P.
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