Thursday, June 20, 2013

Mexican stock market takes the down elevator with Dow

When Bernake speaks, Mexico listens

Guadalajara -
Anyone who needed further evidence that Mexico's economy remains tied far too tightly to that of the United States surely got it today. Irrefutable, smoking gun evidence.

The U.S. stock market has had two very bad days. The Dow Jones industrial average lost 353 points Thursday, 2.3% of its value and by far its worst performance in 2013. Since Wednesday it's lost more than 550 points, representing 4% of value. Today was the biggest one day drop since November 2011 - enough to get the attention of any investor.

Virtually all financial experts concurred that markets were spooked by Federal Reserve chairman Ben Bernanke's passing comment that the federal government may stop pumping stimulus money into the economy by the end of the year. That set off alarm bells all over Wall Street . . . and in Mexico City.

The Bolsa Mexicana de Valores (BMV), this country's stock market, closed down 3.91% today, its biggest loss since September 2011. BMV analysts attributed the precipitous slide to the Bernake remarks as well, which arguably should be of little concern to Mexican investors and policy makers.

The BMV had a stellar year in 2012, beating previous highs on 23 occasions. Measured by the peso, the BMV returned 17.88% last year. Measured in dollars, gains were about 26%. By comparison, the Dow Jones industrial average gained 7.26% in 2012, while the NASDAQ rose 15.91%. Mexican stock market beat U.S., London, Brasil in 2012. But today the BMV proved it couldn't stand on its own.

The peso has followed a similar trail in recent months. At the beginning of 2013 it appeared unusually potent, and it continued to clobber the dollar until mid-May. Dollar falls unexpectedly against Mexican peso, as U.S. goes over fiscal cliff. Then Mexico's economic forecast changed almost overnight - for the worse - and greenbacks came punching back. Today the dollar closed at about 13.4 pesos, gross value. As May ends, U.S. dollar stages powerful rebound.

None of this is good news for the seven month old Institutional Revolutionary Party government, which is pulling all kinds of rabbits out of the hat to stimulate the domestic economy. As peso continues its slide, Peña Nieto puts a trillion of them on the table.

The president's challenges are many. Falling pesos, omnipresent drug cartels and rebellious states which remain defiant to federal authority are but three. The tenant of Los Pinos has 65 months to go.

June 21 - Banixco raises storm flag warning on Mexican economy
Jan. 28 - Mexican peso "well anchored," says central bank director

June 12 - 59% of Mexicans remain trapped in underclass
Mar. 11 - Enrique Peña Nieto's three smart decisions

© MGRR 2013. All rights reserved. This article may be cited or briefly quoted with proper attribution or a hyperlink, but not reproduced without permission.

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