April 8th, 2014
Money Morning Article of the Week
by Garrett Baldwin, Money Morning
Emerging markets have experienced record outflows so far this year, as global capital sailed back to safer markets.
Just in the first five weeks of 2014, $18.6 billion fled emerging markets - a staggering number when compared to the $15.2 billion in emerging market outflows for the entirety of 2013. Follow up:
As a result, emerging markets around the globe are taking a pounding. Nations like Turkey and Argentina have experienced sharp currency downturns. China is being forced to push proposals to increase stimulus again to gloss over economic uncertainty stemming from its latest government spending.
But among the first quarter's beat-back of emerging markets, a buying opportunity has been flying under the radar...
This country's brand new economic policies favoring foreign investment and greater economic liberalization signal a strong "Buy" for forward-thinking investors - and best of all, it's just a short trip across the border...
Time to Profit as Mexico Ends a 76-Year-Old Monopoly
Mexico's economy is poised to profit from the recent overhaul of public policies related to the oil and gas industry, in addition to its telecommunications systems.
In December, President Enrique Peña Nieto announced plans to end the state-owned monopolies of oil company Petroleos Mexicanos (Pemex) and electric company Comision Federal de Electricidad (CFE).
The move opens up increased competition and a break from monopolies that have strangled the market for decades. Mexico will be liberated from the shackles of limited foreign investment, and innovation and incomes will increase. The country expects to gain about $10 billion more per year in revenue from oil privatization.
Earlier this month, Money Morning Global Energy Strategist Dr. Kent Moors stated Mexico's breakup of its nationalized energy supply, after 76 years of monopoly, will attract new investment and development.
The country can move forward with a surge in infrastructure. In fact, last May, the president announced a five-year, $316 billion plan to increase Mexico's infrastructure through 2018. Better infrastructure will bolster the country's surging manufacturing sector.
The surge through the rest of the decade will provide investors with strong returns, thanks also to rising exports.
Although Mexico only posted a 1.1% growth rate in 2013, the Institute of International Finance projects growth to increase by 3.5% this year and 4.5% in 2015.
The same sentiment is shared by Hasan Tuluy, the World Bank's vice president for Latin America. The World Bank projects an increase between 3.5% and 4.5% this year.
Here's how outsiders can become insiders that take part in Mexico's renewed emerging market - and net huge gains as a result...
How to Invest in the Mexican Revival
There are two ways to invest today in this emerging market.
First, investors may consider a number of energy plays that will benefit from improving cooperation on oil and gas projects between the U.S. and Mexican governments.
Dr. Moors explained last week that recovery of oil and gas will rely on
"technical expertise and equipment not available in Mexico."
That makes U.S. oil-field providers and companies with the technological know-how strong buys moving forward.
For example, Dr. Moors explained that PEMEX and oil field global leader Schlumberger Ltd. (NYSE: SLB) have
"implemented a production surveillance system to estimate gas rates and liquid loading, along with monitoring Key Performance Indicators (KPI)."
Income investors might consider midstream operators that also stand to benefit from U.S.-Mexico cooperation. Just last week, the Obama administration approved plans by Energy Transfer Partners LP (NYSE: ETP) to build a natural gas pipeline across the border. The company plans to boost exports from Mexico's shale fields in the coming years. The master limited partnership pays a juicy 6.86% annually.
The second way to invest in this emerging market is to capitalize on Mexico's economic growth with an ETF.
iShares MSCI Mexico (NYSE: EWW) holds approximately $2.5 billion in assets and has experienced a five-year boost of more than 19% since the 2008 financial crisis. It mainly consists of consumer staples, telecom services, and financials stocks - all favorable sectors poised to break out with stronger economic growth.
The ETF pulled back by 13.7% over the last year, which presents investors with the option of getting in on Mexico at a discount.