Mexico & Nafta - 15 July 2003

The business links between Mexico and the US are becoming ever closer. It is noticeable that Latin American and international organisations have now started to put Mexico in a category of its own: it is neither North American nor Latin American. The country would like to remain at this halfway point, but fears that it will be drawn into an ever closer union with the US. 

One of the most tangible signs of Mexico's recovery from the crisis of 1995 is the decision by the Mexican stockmarket, the Bolsa Mexicana de Valores (BMV), to list the 26 US stocks which make up the Dow Jones Industrials Index. The idea behind this is to generate more business for the stockmarket. These shares will be quoted in pesos and will thus be easier for (smaller) Mexican investors to buy. 

The move has already had an effect on turnover, traders say. It also shows that there is a growing pool of savings in Mexico which needs a home. Investing in the stockmarket, where both capital gains and dividends are tax-free, is an attractive option for savers. 

The listing of the US shares shows that this pool of Mexican capital is of interest to some of the biggest companies in the world. It was only 15 years ago that big Latin American companies had to go to the US to tap into a worthwhile pool of capital. 

The BMV's decision to offer US shares also points to anther problem for the region's stockmarkets: the dearth of new local companies coming to the market. To be fair, Latin America is not alone in having this problem. The world's developed markets hail each of the rare new issues they have as the start of the recovery. 

Bigger scale. The other point worth noting about Mexican business is that Mexican companies are becoming ever larger players, rather than just suppliers, in the US markets. One sign of this was the decision by Latin America's richest man, Carlos Slim Helú, to sanction a US$1.7bn investment by Teléfonos de México (Telmex) in WorldCom bonds. 

WorldCom is a troubled US telecoms company which has a major stake in Avantel, one of the main competitors to Telmex in Mexico. 

Telmex claims that the move is a financial investment, but few in the financial market believe this. The bondholders will be in a strong position in the bankruptcy of WorldCom. Analysts say that other companies in the Slim empire have also been buying WorldCom bonds. They reckon that Slim may in fact hold about US$3bn worth of WorldCom bonds. 

Slim has a record in the US as an astute investor. One of his major coups was in buying Apple shares in 1997, just before the launch of the i-Mac and return of Steve Jobs. He is supposed to have paid US$17 a share and to have sold out a year later at US$100 a share. Apple shares are now back in the netherworld of US$20 a share. 

Coca-Cola. Traditional linkages between the two economies are also getting stronger. Coca-Cola's 15 bottlers in Mexico say that they will invest US$600m in improving their distribution network and modernising plants. It is one of the biggest direct investments in the country this year. The government is nervous about the fall-off in foreign investment. It had hopes for about US$12bn in foreign direct investment. 

The Industrial Mexicana de Coca Cola has 1.1m customers in Mexico, 22,000 vehicles, 465 depots and 79 bottling plants. 

La Prensa. The US's oldest Hispanic newspaper, El Diario/La Prensa, was sold for US$20m at the beginning of July to a group of private investors, led by Clarity Partners. The newspaper is the leading Hispanic paper in New York. Clarity's principal, Stephen Rader, played a major role in the creation of Univision, now the biggest Hispanic broadcaster in the US.