There is a sound economic and political case for expecting a relatively benign outcome for Mexico. For one, it would be very difficult for Trump to put in place the kind of tariffs that have been talked about \u2013 whether it is the 35% he initially tweeted or last week\u2019s figure of 20%. This is because, apart from the questionable legality of any such tariffs, many Republicans would likely oppose them. Additionally, even if Trump were to succeed in putting tariffs in place, it is very unlikely that we would see any sudden or disruptive relocation of manufacturing to the US. US & Mexican manufacturing are highly interdependent and capacity utilisation at US car plants is already over 85%[[Source: Federal Reserve, Industrial Production and Capacity Utilization \u2013 G.17, 18 January 2017]]. And then there is the impact of a weakening Mexican Peso, which has served to improve Mexico\u2019s manufacturing competitiveness even further: Mexican wages are now 1\/8 to 1\/5 of US wages[[Source: UBS, US Autos & Auto Parts, 26 January 2017]]. <\/p>\n
Companies feeling optimistic<\/strong><\/p>\n This more optimistic view of Mexican prospects is very much supported by the comments I heard from the management of Mexican companies themselves. For example, Vesta, which develops and leases factories to multinational companies, says that it has seen almost no change in the plans of potential tenants since Trump was elected. Their largest tenants, including global auto manufacturers, are going ahead with plans to expand capacity in Mexico. What is more, the uptake of lease renewals on Vesta\u2019s factories has also been strong since Trump\u2019s election: the company said that the renewal rate of leases due to expire in 2017 was high for this early in the year.<\/p>\n With that in mind, it is interesting to consider valuation. Vesta\u2019s share price has fallen 18.7% in Mexican peso terms and 26.2% in US$ terms since October[[Source: Bloomberg, 31 October 2016 to 30 January 2017]]. In fact it is down 42.1% in US$ terms over the last couple of years[[Source: Bloomberg, 30 January 2015 to 30 January 2017]], despite still being exposed to longer term positive change as I expect multinationals to keep expanding their manufacturing presence in Mexico. An additional point \u2013 which is especially relevant given the weakness of the peso \u2013 is that Vesta receives 82% of its rents in US dollars[[Source: Vesta]]. Further comfort comes from the fact that Vesta has continued to buy back its own shares in the market, which I believe is a strong sign that management are confident of a limited negative impact from Trump and are bullish on the longer-term growth prospects.<\/p>\n So, as a result of the apparent disconnect I see between share prices and fundamentals, we recently added Vesta as a new position in the Jupiter Global Emerging Markets Equity Unconstrained fund.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":" I recently met with a number of companies in Mexico. Obviously it is a very topical time to be in that part of the world, given everything President Trump has said and done to shift the tone of the US\u2019s relationship with its southern neighbour. I came away from the trip feeling that the prospects for Mexican companies are better than many investors fear.<\/p>\n","protected":false},"author":1,"featured_media":60841,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1663,1809,1655,1651,2087,2068,2239],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/60843"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=60843"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/60843\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/60841"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=60843"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=60843"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=60843"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}