Mexican stocks ignore slump in other markets

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In a world of stock markets awash in red ink this year, Mexico’s market has been a surprising winner.

The main IPC share index was up 6.5% year to date through Wednesday, which compares with double-digit losses in many other markets -- particularly those in the developing world.

In theory, Mexican stocks should have been slammed. As Times Staff Writer Marla Dickerson reports from Mexico City:

‘The linkages between the U.S. and Mexican economies are so strong that many investors assumed that the stumbling U.S. economy would drag down Mexico along with it. After all, the U.S. is the destination for 80% of Mexico’s exports, it’s the top buyer of Mexican oil and U.S.-based employers supplied most of the $24 billion in remittances sent to Mexico last year.’

But concerns about the potential spillover of U.S. woes have been muffled by some robust reports on Mexican economic activity, Dickerson says:

• Retail sales were up 3.8% in January from a year earlier, the best showing in six months.
• Tax collection is running ahead of predictions thanks to sky-high oil prices and better-than-expected revenues from a new alternative minimum tax implemented in January.
• Production and exports of autos jumped in January, underpinning the manufacturing sector.

What’s more, she notes, Mexico’s finance ministry has vowed to spend big on infrastructure in coming years, which would help to cushion against U.S. economic weakness.

The government is ‘really trying to channel resources . . . into infrastructure spending,’ Marcela Meirelles, Latin America economist with Trust Co. of the West in Los Angeles, tells Dickerson. ‘Mexico will decelerate [in 2008] but not nearly as badly as in the past.’

The stock market also may have been helped in the first quarter by anticipation of a change in government rules this week allowing Mexican pension funds to hold more of their assets in stocks.

Strength in stocks has helped to boost the peso, which is at a two-year high of 10.56 to the dollar, compared with 11.20 per dollar in August. That gives the country more purchasing power.

Still, it’s hard to imagine the Mexican economy holding up if the U.S. slides into a deep recession. One warning sign: A government report on Wednesday said a survey of Mexican manufacturing companies’ confidence dipped in March.