Mexican Stocks Ready To Resume Their Climb?
After a 4-year consolidation, Mexico’s stock market finally broke out to all-time highs.
It’s been a very interesting month in global financial markets. On the one hand, almost every asset class in the U.S. – from stocks to bonds to real estate – has broken out to all-time highs. Meanwhile, for many international equity markets – from Europe and Germany to Japan and elsewhere – it was all they could do not to fall off the proverbial cliff in the aftermath of Brexit. However, despite the seeming U.S. monopoly on financial asset performance at the moment, there are a few other hot spots starting to pop up around the globe. One such hot spot is close enough to receive its heat via convection from the U.S.: Mexico.
Specifically, after nearly tripling from 2008 to early 2013, Mexico’s IPC Stock Index has spent the past 3.5 years consolidating those gains. In fact, over the past 4.5 years, the index has traded within a 20% range. Through that range-bound action, the IPC has oddly alternated displays of relative strength (by not going down as much during global selloffs) and relative weakness (by failing to mount any sustainable advances during global rallies). This episode has finally (perhaps) been broken with the IPC’s breakout to new all-time highs in the past few days.
So is it all clear sailing now for Mexican stocks? Obviously, there is no way to know for sure, but clearing 3.5 years of overhead supply is obviously a significant hurdle. Folks like to opine about the potential pent up fuel in the S&P 500 following its 2-plus years of range-bound action. Mexican stocks have been running in place for nearly twice as long so the notion of an explosive and durable rally following this long-awaited breakout is understandable.
On the other hand, on a longer-term basis, the Mexican market may not have quite as much left in the tank as some other markets. Consider the fact that while other markets have done very well since the 2008-2009 lows, much of that effort was spent playing catch-up. Indeed, while the S&P 500, for example, is up threefold from the 2009 lows, it is “only” up about 40% since 2000. Conversely, the IPC Index is up roughly 600% since 2000. So it hasn’t had to battle the secular bear market forces that many of its fellow global markets have.
That said, even if the Mexican secular bull market is getting old in the tooth, it does not at all preclude a substantial intermediate or longer-term rally here. In fact, while we are not making this forecast, the rally could certainly extend for years, based on secular cycle trends.
For now, we’ll take it one day at a time. As long as Mexican stocks can hold above the long-awaited breakout line, the sky’s the limit. Should they fail to hold, the resultant false breakout could usher in a potentially nasty decline.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
