Wednesday November 14, 2012
by Jim Powell, editor Global Changes & Opportunities
While blue chips offer the greatest long term gains with the lowest risks, a successful portfolio should also include some stocks that carry more risk, including leading companies in emerging nations.
One emerging nation is that is starting to make exceptional progress is Mexico, but few U.S. investors have yet to notice. The country is undergoing a manufacturing revolution and already exports more products to the world than the rest of Latin America combined.
During the first six months of this year, Mexico supplied 14.2% of manufactured imports to the U.S., vs. just 11% in 2005.
By contrast, China is starting to lose ground as a U.S. supplier – from 29.3% in 2010 to 26.4% in 2011. Much of China’s lost business is going to companies in Mexico.
Here is why Mexico is becoming so successful, and why I urge you to take a position to benefit from the country’s progress:
- Few countries in the world have made a greater commitment to promoting trade than Mexico. The government signed free trade agreements with 44 other nations, which is more than twice as many as China and four times more than Brazil.
- Mexico shares a 2,000 mile border with the U.S. which gives the country a big advantage over its competitors. Although China can still make most products at a lower cost, the advantage usually disappears when transportation expenses are included.
- Mexico’s close proximity to its markets also means it can quickly respond to customers. U.S. buyers doing business with China must wait at least two weeks to get an order changed and delivered. That time is regularly cut in half if the supplier is in Mexico.
- Mexico is also in the same time zone as most of its customers; a U.S. customer can pick up the phone and do business right away with Mexico.
- Unlike China, suppliers in Mexico rarely steal their customer’s designs and produce counterfeit goods. Mexico is starting to attract many customers who have had bad luck with Asian manufacturers.
The safest, most diversified way to share in the development of Mexico is to buy the
iShares MSCI Mexico Investible Market Index Fund (
EWW). It holds positions in the country’s must successful companies.
The fund’s 1-year, 3-year, 5-year, and 10-year annualized returns were 34.9%, 16.1%, 4.2%, and 20.3% respectively. For most investors, EWW is the best way to benefit from the Mexican transformación.
More speculative but with the potential for even greater returns is
CEMEX, S.A.B. de C.V. (
CX). The company was founded in 1906 and is Mexico’s largest producer of cement, concrete, and other construction materials.
Nearly all of CEMEX’s products are sold worldwide. The company posted a loss over the past year due to its expensive expansion program and the global economic slowdown. Nevertheless, the longer-term outlook for CEMEX appears to be very good.
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