What is a current account deficit and why does it matter for Mexico's economy?

A current account deficit occurs when a country imports more goods, services, and capital than it exports. Mexico's narrowing deficit (now $12.6 billion) is significant because it indicates the country is becoming more financially self-sufficient. This improvement reduces Mexico's vulnerability to external financial shocks, supports a stronger peso, and increases investor confidence in the economy. For investors, this creates a more stable environment for Mexican companies to operate in, potentially leading to better business performance and stock returns.

How does a stronger peso benefit these Mexican companies?

A stronger peso helps Mexican companies in several ways. First, it reduces the cost of imported materials and equipment, improving profit margins for manufacturers. Second, it increases the purchasing power of Mexican consumers, boosting sales for retail and consumer goods companies. Third, it makes Mexican assets more valuable in dollar terms, which can attract more foreign investment. Companies in this theme, from consumer goods producers like Fomento Economico Mexicano to airport operators and building materials suppliers, are positioned to directly benefit from these currency dynamics.

What is nearshoring and how does it impact Mexican companies?

Nearshoring is when companies relocate their manufacturing or operations closer to their consumer markets, rather than using distant locations like Asia. For Mexico, this trend means more businesses are moving production from Asia to Mexico to serve the North American market. This shift is driven by concerns about supply chain reliability, shipping costs, and geopolitical tensions. Companies in this theme, particularly those in manufacturing, industrial real estate, and infrastructure, stand to benefit from increased investment in Mexican facilities, greater industrial activity, and job growth that supports consumer spending.

What are ETFs and how do they provide exposure to Mexico's economy?

ETFs (Exchange Traded Funds) are investment products that hold a collection of securities and trade on exchanges like individual stocks. The Mexican ETFs in this theme (EWW, FLMX) offer a way to invest in a diversified basket of Mexican companies with a single purchase. Rather than picking individual companies, these ETFs provide broad exposure to the Mexican market, allowing investors to benefit from Mexico's improving economic conditions across multiple sectors. This approach can be simpler and less risky than selecting individual stocks for investors who want exposure to Mexico's economic growth.

15 handpicked stocks

Mexico's Stable Rise

Mexico's economy is showing impressive signs of stability with a narrowing current account deficit. This collection features companies set to thrive from a potentially stronger peso, increased consumer spending, and renewed investor confidence in Mexico's economic future.

Han Tan | Market Analyst

Updated 2 days ago | Published at जून 30