Mexico's star wanes as reforms underwhelm, Brazil rises
By Michael O'Boyle and Bruno Federowski
MEXICO CITY/SAO PAULO, July 13 (Reuters) - Foreign investors in Latin America are warming to Brazil as a promising turnaround bet while souring on Mexico and its landmark energy reform that has yet to deliver.
Brazil has yet to recover from its worst recession in decades, inflation and interest rates remain among the highest in the region and it is saddled with a bloated public sector. In contrast, Mexico's economy is growing at around 2 percent, has lower fiscal deficits and sounder public finances.
But while Brazil interim president Michel Temer's reform agenda offers some promise, Mexico, once a darling of foreign investors, is now a source of disappointment. A slump in oil prices dashed hopes that President Enrique Pena Nieto's energy sector opening in 2013 along with telecoms and banking reforms would boost foreign investment and supercharge growth while clouds are now gathering over its budget and economy.
Out of 12 funds consulted by Reuters, seven have recently sold Mexico bonds and nine bought Brazil bonds. Five of the Brazil buyers were Mexico sellers. Five kept Mexico holdings steady, while three left Brazil exposure unchanged.
The funds ranked among the top investors in Mexico and Brazil according to Thomson Reuters eMaxx data.
Brazilian bond mutual funds saw net purchases and 16 percent returns in dollar terms through May, while Mexican debt funds lost 4.5 percent and saw redemptions, according to Lipper data. (Graphic: tmsnrt.rs/29o0WIe)
"Brazil offers a lot of turnaround potential," said Michael Ganske, head of emerging market fixed income at AXA Investment Managers, citing a return to more credible policies, inflation coming down and a potential for aggressive interest rate cuts.
Those who piled into Brazil early this year have already seen rich rewards while Mexican investors have been hammered by the peso's losses, which slashed dollar returns. Continuación...