• Mexico's economy shows increasing stability, with a narrowing deficit suggesting potential for a stronger peso.
• Key sectors like consumer goods and construction are positioned to benefit from rising domestic spending power.
• The global nearshoring trend provides a powerful catalyst, boosting Mexico's industrial and logistics sectors.
• Investment opportunities may exist in companies poised to gain from currency strength and overlooked economic fundamentals.

A Contrarian's Glimpse at Mexico's Quiet Comeback

Let’s be honest, when most investors think of Mexico, their minds often jump to political noise and currency wobbles. It’s the sort of place that makes for dramatic headlines, but not always for calm, considered investment. And yet, if you tune out the shouting for a moment and look at the rather boring numbers, a different story starts to emerge. One that, I must admit, has piqued my interest.

The big, overlooked detail is the country's current account deficit. I know, I know, it sounds dreadfully dull, but stick with me. Think of it like a household's bank statement. For a long time, Mexico was spending more abroad than it was earning. Now, that gap has shrunk considerably, down to about $12.6 billion. This suggests the country is becoming more self-sufficient, less reliant on foreign cash to keep the lights on. To me, that’s a fundamental sign of improving economic health.

The Peso's Understated Power

A shrinking deficit like this often precedes a stronger currency. It’s simple logic. If you’re earning more and spending less, the value of your money tends to go up. A robust peso could be a powerful engine for the domestic economy. Suddenly, imported goods, from machine parts to the avocados that don't grow locally, get cheaper. This can help cool inflation and improve profit margins for businesses without them having to lift a finger.

More importantly, it puts more spending power into the pockets of ordinary Mexicans. When your pesos go further, you might buy that extra bottle of Coca-Cola or pick up a few more things at the corner shop. It’s this virtuous cycle, where currency strength feeds consumer confidence, which in turn fuels the economy, that I find compelling. It’s a slow burn, not a firework display, but often those are the trends that have real staying power.

Where Might the Money Flow?

So, if one were to entertain this idea, where would you look? It seems to me the most direct beneficiaries would be the companies that serve the domestic population. Take Fomento Económico Mexicano, or FMX, the operator of the ubiquitous OXXO convenience stores. You can’t walk a block in many Mexican cities without seeing one. If people have more to spend, these stores are likely to be among the first to see it.

Then there’s its cousin, Coca-Cola FEMSA (KOF), the massive bottling company. It’s a similar story, a direct play on consumer spending, but with an added bonus. A stronger peso could also lower the cost of its imported raw materials, potentially fattening up its margins. For a different flavour, you could look at a giant like CEMEX, the cement producer. Economic stability and confidence often lead to more construction, from new homes to national infrastructure projects, and that, of course, requires a lot of cement. These companies represent a cross-section of the potential recovery, and they form the core of a theme some are calling Mexico's Stable Rise.

Don't Forget the Neighbours

There’s another tailwind here, one that has less to do with Mexico’s own actions and more to do with global common sense. The trend of ‘nearshoring’, where companies move their manufacturing closer to home, is a huge potential boon. After years of supply chain chaos, businesses are realising that having your factory a truck-drive away in Mexico is perhaps more reliable than having it a container-ship-journey away in Asia. This isn't just about cheap labour anymore, it’s about resilience. More factories mean more jobs, more investment, and more money flowing into the local economy, adding yet another layer to this quiet comeback story. Of course, no investment is without risk, and Mexico’s political landscape can be unpredictable. But for those willing to look past the noise, the economic fundamentals are telling a rather interesting tale.

Deep Dive

Market & Opportunity

• Mexico's current account deficit has narrowed to $12.6 billion, signaling improved economic stability.
• Nearshoring trends are creating tailwinds for Mexican businesses as companies seek alternatives to Asian manufacturing.
• A strengthening peso is expected to increase domestic consumer spending power.
• A stronger peso reduces the cost of imported materials and machinery for Mexican companies.

Key Companies

• Fomento Económico Mexicano, S.A.B de C.V (FMX): Operates the OXXO convenience store chain and Coca-Cola bottling operations, making it a direct beneficiary of increased domestic consumer spending.
• Coca-Cola FEMSA S.A.B de C.V. (KOF): As Mexico's largest Coca-Cola bottler, the company benefits from increased consumer demand and lower costs for imported materials due to a stronger peso.
• CEMEX, S.A.B. de C.V. (CX): A global cement company with exposure to Mexico's construction and infrastructure sectors, which stand to benefit from increased domestic investment. A stronger peso also reduces its dollar-denominated debt.

Primary Risk Factors

• Political uncertainties, particularly regarding energy policy and regulatory changes, could impact business confidence.
• Currency movements are unpredictable and can be influenced by external factors like U.S. monetary policy or global risk sentiment.
• Individual company performance can vary, and not all businesses will benefit equally from economic stability.
• Mexican stocks can exhibit higher volatility compared to developed markets due to political events and changes in investor sentiment toward emerging markets.

Growth Catalysts

• Mexico's improving current account position suggests the potential for further peso strengthening.
• The trend of nearshoring is increasing demand for Mexican manufacturing facilities, transportation, and logistics.
• A stable and strengthening currency reduces risk for international investors, potentially increasing capital flows into Mexico.
• Increased consumer purchasing power driven by currency stability can boost domestic demand across multiple sectors.

Investment Access

• The collection of stocks is available through fractional shares.
• Investments can be made starting from $1.
• The "Mexico's Stable Rise" collection is available on the Nemo platform.
• Access is offered on a commission-free basis.