Investment bank Morgan Stanley has cut His investment recommendation in Mexico is ‘poor’which means the company expects Mexico’s stock performance to be below the regional average.
This adjustment was detailed in a recent report,“Latin American Portfolio Model”, Published on August 20.
Morgan Stanley’s decision is based on its assessment that proposed judicial reform pushed by President Andres Manuel Lopez Obrador could increase risks in Mexico and limit investment.
The bank noted: “We are downgrading Mexico’s rating to ‘below market’.” following a proposal for judicial reform that the executive branch sent to Congress. We believe that replacing the judicial system will increase risk, risk premiums in Mexico and limit capital expenditure. “This is a problem because nearshoring affects key bottlenecks.”
Consequently, Morgan Stanley recommended to its clients Reduce your exposure to Mexican stocks such as Walmart de México (Walmex), Fomento Economico Mexicano (FEMSA) and Coca-Cola FEMSA.
He also proposed excluding Quálitas, Kimberly Clark México and Laureate from investment portfolios.
Photo. Darkroom Archive
However, the bank also added Monterrey-based conglomerate Alfa to its list of Latin American investment recommendations and left its recommendations on six other Mexican companies unchanged: America Moville, Cemex, Fibra Prologis, Grupo México, Banorte and Cuervo.
As for Kimberly Clark, Morgan Stanley explained that the decision to exclude it from its portfolio is due to expectations of weak earnings performance starting in the fourth quarter of 2024. As for Laureate, the company’s departure from the recommended list is explained by growing macroeconomic uncertainty in both Mexico and Peru, as well as short-term pressure on the exchange rate in Mexico.
Morgan Stanley has doubts about Quálitas on the impact of nearshoring because of the risk posed by the proposed reform of the judiciary.
Photo. Darkroom Archive
The reform, promoted by Lopez Obrador and supported by Claudia Sheinbaum, Mexico’s elected president, aims to extend the terms of office of all judges, federal magistrates and ministers of the Supreme Court of the country (SCJN), establishing that they are elected by popular vote.
To approve this reform, a qualified majority (two-thirds) is needed in both houses of the Congress of the Union. According to preliminary forecasts of the National Electoral Institute (INE), the ruling coalition of Morena, PT and PVEM will achieve this majority in the Chamber of Deputies, but not in the Senate.
Source: Aristegui Noticias
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
