- Markets & Risk Newsletter
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- Swine Flu Rocks the BMV A declining stock market is in many ways like a human patient suffering with a disease. There are symptoms of illness (in the case of the market, a decline in prices) prompting an examination by analysts. Sometimes the source of the illness seems easy to pinpoint, but in other cases there may be a multiplicity of forces at work, and it may be difficult to judge the individual effects of each. Founded in 1886, the Mexican Stock Exchange (Bolsa Mexicana de Valores, or BMV) is Mexico's only stock exchange. After Brazil's BM&F Bovespa it is the second largest stock exchange in the Latin America. The total value of the Mexican Stock Exchange is estimated to be over US$600 billion. For decades the BMV IPC Index cruised steadily with little volatility. Accelerated growth began in early 2004, and by September of that year the index topped 10k for the first time. A year later it was above 14k, and in September 2006 had crossed 20k. A plateau of 30k was sustained until June 2008, when the slide began. By November the index had bottomed at 20k.
Today it is at 25k, but not without volatility. Between February and March 2, 2009 the IPC index dropped sharply from 20k to 17.5k. Since that date it has risen, with some exceptions, particularly in the last week of April. It was on April 23 that the Mexican government first reported cases of a potentially virulent flu outbreak - the Swine flu, or more precisely H1N1. The national and international response was swift. China suspended all direct flights from Mexico. The Mexican government ordered a five-day, nationwide shutdown of all nonessential government and private businesses. The outbreak cost companies in Mexico City at least $85 million a day in lost revenue, deepening the recession. At the outbreak of what was believed to be a major epidemic the BMV IPC index took a sharp dip, only to recover during the first week of May. During this same period the S&P 500, which the IPC generally parallels, gained steadily. Was the sudden volatility in the IPC due to H1N1?
Perhaps; perhaps not. Here are some of the forces that have recently influenced investor confidence in the BMV: -Tourism contributed US$13.3 billion into the economy last year, making it Mexico's third-largest source of foreign currency behind oil exports and migrant worker remittances. Increased drug-related gang violence has already impacted the tourist trade; H1N1 only added to travelers' jitters. -Long-term, the Bolsa Mexicana has fallen behind Brazil's BM&F Bovespa SA, the region's largest stock exchange, as Mexican companies increasingly avoid public listing requirements and the Bolsa trading technology lags behind those of peers. Mexican companies are hesitant to go public because they don't want to expose their operations to investor scrutiny and because many are part of conglomerates that provide financing. -On a positive note, many of Mexico's biggest pension funds will now be funneling new workers' pension contributions into stocks. -Ironically, the sell-off began just as investor confidence in Mexico was starting to rebound because of the IMF's April 17 decision to extend the country a credit line, shoring up confidence in Mexican debt. -Investors are wise to watch the activities of Carlos Slim, the controversial Mexican businessman and philanthropist who is currently the third wealthiest person in the world with a net worth of around US$35 billion. Slim's wealth is the equivalent of roughly two percent of Mexico's annual economic output. While H1N1 may have grabbed the headlines, wise investors look for risk and volatility in stories that lurk in the back pages. For information on powerful risk-management tools that allow you to track and measure the risk of global equity markets, contact PortfolioScience today. |
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