Invest in Mexico, Hispanic consumer

With a growing Hispanic population, many Mexican brands are making their way to grocery shelves in the U.S.

Despite swelling fears of the recession, drug trafficking, the United State’s trucking ban, Mexican tariffs, the dispute over illegal immigration and the swine flu, U.S. investors should not overlook our south of the border neighbor.

Mexico is becoming an increasingly attractive location for foreign companies to do business and on the flipside, Mexican companies are becoming more interested in investment in the states.

The public has tended to cast the Mexican community in a negative light, according to Dr. Farrokh Hormozi, an economics professor at Pace University in Pleasantville, N.Y.  But ever since the North America Free Trade Agreement, or NAFTA, the Hispanic market both in the U.S. and in Mexico has become prosperous and consumption-oriented.

Mexico’s GDP has reversed course from last year’s decline and is expected to steadily increase through next year.  Mexico’s second-quarter GDP rose 3.2 percent compared with the 2010 first quarter, and was up 7.6 percent from the second quarter of 2009.

Because 80 percent of its exports go to the U.S., Mexico is dependent on a continued recovery from recession in the U.S. and may slightly lag behind until it is confident that the neighboring economy is turning around, according to an iMarketNews article by Jonathan Roeder.

In addition, Mexico’s middle class is growing and there is a larger amount of disposable income from young adults, giving the country higher demand for consumer goods.  “Analysts estimate that the Mexican retail sector will grow 43 percent during the next five years,” according to a report from UK Trade & Investment.

The Mexican economy is “quite prosperous despite some internal problems,” Hormozi said.  “Overall it is one of the most dependable economies of Central America.”

But Hormozi said the negative news such as illegal immigration and drug trafficking is seen as more “newsworthy” and publicized much more than the plethora of success stories concerning Mexican business.

American companies were first interested in looking to Mexico for “cheap labor and relaxed business laws,” he said.  Now companies are turning to the country because of its “increased productivity.”  Hormozi said Mexico is adopting many American business laws regarding labor and the environment.

In addition, some Mexican companies, like Grupo Bimbo and Sigma Alimentos, are taking advantage of their knowledge of the Hispanic market and expanding into the U.S. market. Grupo Bimbo is a baking company that owns such popular brand names as Boboli, Entenmanns and Arnold. Sigma Alimentos, the food group of Alfa SAB de CV, is a leader in refrigerated and frozen foods, with the Latin American brands of Yoplait and Oscar Mayer.

So what are some investments to take advantage of this growth?

Fomento Economico Mexicano SAB (ADR)

Femsa is the beverage company in charge of distribution and bottling of Coca-Cola products in Latin America, according to Yahoo Finance. With the growth of the Mexican middle class and increased disposable income in Mexican youth, this company is projected to continue to grow.

Grupo Bimbo SA (GRBMF.PK)

Grupo Bimbo is a baking company that owns some of the top brands in Latin America.  Bimbo is taking advantage of its knowledge of the Hispanic market to sell into the growing population in the U.S.  Bimbo has also acquired some major American bakery brand names. An investor can invest most directly in Grupo Bimbo on the Bolsa, but for an American investor it may be easiest to invest in this company over-the-counter.

iShares MSCI Mexico (NYSEArca: EWW)

Investing in this ETF is a way to take advantage of the stocks trading on the Mexican stock market and to take advantage of Mexico’s growing share of exports.

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