Weekly Mexico Market Monitor

October 13, 2023
4:24 pm

Weekly Mexico Market Monitor

Friday AM, October 13, 2023

MARKETS 

  The FTSE-BIVA index closed on October 12 at 1,029.47 up slightly from its October 5 close at 1,022.59.

The MXN/USD exchange rate strengthened to 17.98 pesos to the dollar on October 12, from its close of 18.27 pesos on October 5.

The Mexican 10-year bond (2031) closed on Thursday with a yield of 9.804%, slightly down from a yield of 9.873% on October 5.

The FTSE-BIVA Top Stock Gainers for the week were: SITES (+8.42%), ASUR (+8.38%) and GAP (+7.96%) and the Biggest Losers were: HCITY (-8.98%), KIMBERA (-7.07%) and GCC (-5.36%).

CORPORATE & MARKET NEWS 

Walmart’s stock dropped sharply as it notified the market “COFECE’s Investigative Authority had recommended the initiation of a quasi-jurisdictional administrative process against Walmex’s main Mexican subsidiary for alleged relative monopolistic practices in connection with the investigation regarding the supply and wholesale distribution of consumer goods, retail marketing of such consumer goods and related services.” Fines could reach 8% of sales or $3 billion, plus restrictions on doing business. Meanwhile Walmart will allocate $1.275 billion pesos to develop 28 new stores in Yucatán over the next two years. They already have 49 stores and clubs in that state, and according to the company, they have invested $5.7 billion pesos there so far.

A tale of two low-cost airlines; while Volaris slumped, Viva Aerobus soared. In September 2023, Volaris transported 2.5 million passengers, a decrease of 0.6% compared to the same month in 2022. The occupancy factor also decreased 3.6pp to 83.8%. Demand in the Mexican domestic market (measured in RPMs) decreased by 4.6%, while in the international market, demand increased by 22.4%. Referencing challenges related to its troubled Pratt & Whitney engines, Volaris reduced its 2023 capacity guidance from +13% to +10% and adjusted its anticipated EBITDA margin from 30% to around 26%. For Viva Aerobus, in September 2023 passenger traffic increased 29.5% compared to September 2022, reaching 2.1 million passengers, driven by a 29.0% and 34.3% increase in domestic and international traffic, respectively. Its occupancy factor also increased 2.4pp to 86.5%.

Fibra Uno’s shareholders greenlit initiating discussions regarding the likely internalization of the external advisor, with a valuation range set between P$9.5-10.5 billion. Additionally, they agreed to contribute industrial assets towards the IPO of a new, internally managed FIBRA to unlock value and growth, and reduce leverage.

In Ciénega de Flores, GenieLift is opening a new plant in which it will produce elevators and construction platforms. The company has invested US $140 million in the project.

Appian Capital, an investment advisor to venture capital funds that invest in mining and mining-related companies, recently closed its third fund of just over US $2 billion. Of that amount, Appian has stated that between one and two billion dollars of capital that it will allocate to Latin America in the medium term, with a significant amount for the Mexican market.

POLITICS 

The border continued to cause problems this week, as increased border checks looking for drugs, migrants and mechanical faults have led to a huge back log of trucks waiting to cross into the United States. According to Thor Salayandia, vice president of the Mexican Chamber of Industry, it is estimated to have cost exporters US $1.1 billion in the last 3 weeks.

The Mexican government issued a decree to attract investments to the country through nearshoring. The decree grants tax incentives such as deductibles on fixed asset investments to companies that relocate their activities to Mexico and/or belong to ten key sectors of the country’s economy, such as the semiconductor, automotive (especially in electromobility), electrical and electronics, audiovisual production, medical devices and pharmaceuticals, agribusiness, and human and animal food industries, among others.

TRADE & ECONOMICS 

Inflation in September grew at an annual rate of 4.45%, or the most modest increase since February 2021, according to data from Inegi. However, in its September 28 meeting minutes, Banxico reiterated that, due to a complicated inflationary outlook, interest rates will need to be held at its present level for a more extended period than initially anticipated.

Mexico’s industrial production growth slowed in August, rising by 0.3% month-on-month and 5.0% year-on-year, compared to July’s +0.5% and +5.0%, respectively. Consequently, YoY growth reached 4.1% through August 2023, compared to +5.0% YOY in 2022.

According to TTR Data, in the first nine months of 2023 Mexico recorded 74 venture capital transactions, totaling US $643 million. Compared to 2022, this represents a decrease of 42% in the number of transactions and a decrease of 70% in the dollar amount.

According to Bloomberg, in August, the number of foreign tourists travelling to Mexico fell by 1.5% compared to last year – the first decline since 2021. On the other hand, more than 600,000 nationals travelled outside Mexico in the same month, an increase of 26% – spending almost 30% more than last year.

According to the Ministry of the Interior, in the first eight months of the year, Mexico approved the permanent residency of just over 47 thousand foreigners – 8% less than in the same period last year.