Surprise Opportunity From South of the Border
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- Published on Friday, 12 October 2012 14:02
- Written by Sara Nunnally, Editor, Inside Investing Daily
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The world is changing in ways that traditional investors haven't seen before. America and other advanced economies are "upside down on their mortgages." Mountains of debt are piling up on our shores and in Europe, Japan and the U.K.
This is the beginning of a huge money shift.
Over the next 12 years, wealth will be flowing out of our economy and into places like China, the Middle East, India and certain markets in Latin America.
In 2007, before the financial crisis, the greatest concentrations of wealth were in the United States, Western Europe and Japan, with a couple of other places scattered around the world.
Sure, wealth will still be in the U.S. and Western Europe, but at significantly lower levels.
An amazing and unprecedented amount of wealth will be moving out of developed markets and into growth markets. My Macro Trader research has targeted several growth markets and some very interesting countries made the list.
One of them is our southerly neighbor, Mexico...
That's right, Mexico. This economy might have surprised you, too.
Mexico's numbers are very encouraging. Like its public debt at only 42.9%, even with the corporate tax rate at 30%. It sees a fair amount of foreign direct investment and has a low youth unemployment rate, which could mean good things for the country's economy, heading into the future.
The markets have been performing well, too. Equities have climbed 18.12% on Mexico's major index over the past 12 months and racked up gains of 32.5% in the past five years.
One of the best things about this opportunity is that there are plenty of investments that you can take part in right through your own portfolio.
I've been watching a company called Empresas ICA, S.A.B. de C.V. (ICA:NYSE). It's a heavy construction company with projects in Mexico and other Latin American countries.
It builds things like bridges and airports, dams and highways, commercial real estate, energy infrastructure, and plants and factories...
All the things a growth market needs. Between 2013 and 2018, Mexico's investments in infrastructure are expected to be 5.5% of GDP, much higher than the average 4.6% of GDP between 2007 and 2011.
In the first quarter of 2012, ICA had a backlog of $2.79 billion, and over the past year, ICA's share price has climbed 40.49%.
If we go back a few years, you'll see that ICA's share price hasn't yet recovered from the financial crisis.
To me, in Mexico's growth market, that spells a massive opportunity over the long term. Listen to this quote from Reuters:
Mexican industrial output rose more than expected in July, bolstering hope that Latin America's second-largest economy may withstand a soft patch in the United States...
Growth was driven by the utilities sector, which rose 1.53%, although the manufacturing subcomponent rose just 0.45% in July from the previous month.
Economists said electricity consumption was an important leading indicator of growth, and it was positive that manufacturing grew at all in the face of weakness in the United States, Mexico's main trading partner.
That's not to say U.S. problems won't give Mexico a few bumps in the road. August industrial numbers were lower than expected, as output fell in tandem with U.S. factories.
Industrial growth is expected to be 3.8% this year, with a big jump next year. I'm expecting big things from Mexico, and ICA is a great way to come along for the ride. I've already positioned my Macro Trader subscribers in ICA, and we're sitting on a gain of 15%.
But there could be a lot more gains from this company as Mexico's growth ramps up.
Just last week, ICA announced a joint venture with Fluor Corp. (FLR:NYSE) to design and construct a multibillion-dollar petrochemical complex in Mexico. This is a huge deal that will keep ICA's backlog book filled for years.
Indeed, the deal puts $275 million on the backlog books for the fourth quarter of 2012 alone!
And this project might not be the only one the joint venture wins.
There are plenty of opportunities coming down the pipe.
Happy Investing,
Sara
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