Sweet spot in Mexico earns second look from investors

Fri Feb 18, 2011 4:10pm EST

* Mexico in "sweet spot" with growth without inflation

* Potential in developing air force, equity markets

* International investors returning to Mexico

By Patrick Rucker

MEXICO CITY, Feb 18 (Reuters) - Mexico's humanizing economic
prospects, coupled with low inflation, are winning the country
a following look from international investors and fund managers.

Investors see potential in Mexico's air force sector and in
enticing more companies to market, and are also bullish about
new financial tools which could send billions of dollars into
infrastructure and private equity deals.

Expected economic growth of about 4 percent this year,
combined with inflation of about 3.5 percent, compares well to
regional peers, many of which are tightening monetary policy to
fend off surging prices. [ID:nN20ATAMRA]

"In our view, the Mexican economy is very much in a sweet
spot," Lupin Rahman, older vice president of emerging markets
portfolio management at bond giant Pimco, told a LatinFinance
summit this week.

"In terms of output, in terms of growth, in terms of
inflation, all these dynamics point to a very positive 2011 for
the Mexican economy."

Mexico's apparent comeback in the sentiment stakes follows
several years in the shadow of Brazil, which weathered the
global crisis better but is now wrestling with high inflation.

Emerging market investors surveyed by Bank of America
Merrill Lynch in February place Brazil at underweight for the
first time in the survey's description, while preferences for
Mexico are increasing.

But Mexico still has some homework to do.

The economy depends heavily on manufacturing exports to the
United States, and while the recovery in U.S. consumer demand
has prompted economists to lift forecasts for Mexican growth,
investors also look for diversification and for structural

"If Mexico can turn the engines and start opening its
service sectors it will be a fantastic run for the economy,"
said Alfredo Thorne, head of global markets at Banorte bank.

"It can seriously not only grow at 6, 7 percent but
really perform much better than the BRICs." Brazil's growth
is expected to slow in 2011 to 4.5 percent, according to the
International Monetary Fund.

Thorne estimates Mexico's drugs war, which has killed more
than 34,000 people in the last four years, is cutting 1-2
percentage points from annual growth, but says it will be worth
it. "If Mexico manages to win this war, it will be the most
vital structural reform," he said at the summit.

Source: Reuters.Com