Wednesday January 09, 2013
by Nicholas Vardy, editor Bull Market Alert
Mexico is a country I’ve dubbed the “China Next Door” for its emerging manufacturing prowess. In fact, I think manufacturers setting up in Mexico just might be the most under-reported mega-trend in global investing.
While Mexican wages were 237% higher than Chinese wages in 2002, that cost advantage today has shrunk to 15%.
Moreover, Mexico’s most obvious advantage is geographic location. Sharing the same time zone and a border with the United States, Mexico’s location is ideal for U.S. companies.
And as recently as 10 years ago, most of the factories lining the U.S.-Mexican border were “sewing blue jeans and crafting Converse sneakers,” as one expert put it. Today, Mexican companies design, develop and manufacture some of the most complex products in the aerospace, automotive, medical and electronics sector.
Unlike China, Mexico allows its currency to “float” in world currency markets. This has resulted in a significant depreciation in the value of the Mexican peso. Americans currently pay 30% more for Chinese products and 40% less for Mexican products, compared to 2007.
Since joining NAFTA in 1994, Mexico’s trade with the United States is duty free. Mexico also has international trade agreements with 44 different countries. The enforcement of intellectual property rights in China is a serious problem for Western manufacturers of all stripes.
Along the U.S. border, the workforce is not only bilingual but bicultural as well. Most university-educated people in Mexico speak English. Meanwhile, Spanish is the most common foreign language taught in U.S. schools. Mexican and U.S. cultures are both western and share more similarities than North American and Asian cultures do.
Even while much of the global economy struggles, Mexico has been doing just fine, thank you. In early 2012, Mexico’s Gross Domestic Product (GDP) grew at an annual rate of 4.6%. Mexican car exports to the United States have now exceeded those from Japan, Korea and Germany.
Some analysts argue that Mexico is likely to become Latin America’s greatest economic success story, pushing Brazil out of the spotlight. Nomura, an investment bank, has predicted that “Mexico [will] surpass Brazil to become the region’s largest economy within the next 10 years.”
The iShares Mexico Investable Market Index Fund (EWW) replicates the MSCI Mexico Investable Market index and consists of stocks traded primarily on the Mexican Stock Exchange. So buy EWW and place your stop at $53.00.
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