(Bloomberg) — For years, Mexico was an afterthought among investment bankers, a perennial underperformer overshadowed by Brazil.
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No more. Wall Street is suddenly convinced that the country is on the brink of a breakup if it can avoid squandering this opportunity.
Bank of America Corp., Morgan Stanley and Goldman Sachs Group Inc. all predict investment banking revenue from Mexico will jump this year. Banco Santander SA, the top local bond underwriter last year, will invest $1.5 billion to beef up technology for retail clients. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said his bank has “doubled or tripled” capital in the country over the past six years and sees a “great” outlook for growth.
Mexico is going through a moment, with the prospect of taking advantage for decades of the Covid-era offshoring boom that brings new factories making everything from laptops to cars. Wages are improving, and jobs abound, especially in the commercial heartland. Foreign direct investment has helped make the peso one of the active countries in the world in 2023. Public finances are stronger than those of other emerging countries: debt-to-life economy is well below the average for countries that share their credit scores – and business leaders are cautiously positive about the leading candidates in June’s presidential election.
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“The story is real,” Emilio Romano, head of Bank of America’s Mexico unit, said in an interview in his office. “We have this structural change to grow Mexico at a pace we haven’t seen in decades. “
Still, longtime Mexican observers know that the country has a history of squandering big opportunities, with an economic expansion since the North American Free Trade Agreement went into effect in 1994 of about 2% annually, well below the emerging-market average. The country’s capital markets are underdeveloped relative to its peers, and the next president will want to push through new policies to attract investment, especially in the energy sector, according to Rodolfo Ramos, a strategist at Bradesco BBI.
But for now, Mexican markets are in excellent shape. Bank of America, which governed investment banking revenues in Latin America and Mexico in 2023, according to London-based research firm Dealogic, forecasts a wave of large mergers and expects inventory issuances to emerge this year after tripling to $1. 2 billion in 2023. Sales last year reached their highest point since 2015, and bankers are forecasting a good start to 2024.
Mexico’s investment banking’s share of profits in Latin America rose to 20% last year, up from 13% in 2022, and trends imply the expansion will continue. It is taking market share basically in Chile, Colombia and Argentina, countries that experienced a much slower expansion. last year.
Brazil still gets three times as much investment banking revenue as Mexico, and it remains a much more dynamic economy. But Mexico is showing signs of catching up, with forecasts calling for four straight years through 2025 in which Mexico’s growth will top Brazil’s.
At Bank of America, Mexico posted the largest earnings accumulation in the region in 2023, according to Augusto Urmeneta, who leads the Charlotte, North Carolina-based lender’s Latin America operations.
BofA plans to continue investing “both in our foreign customers who need to do more there, and also in our Mexican consumers who see opportunities for expansion,” Urmeneta said in an interview. He is positive about adjustments to capital markets laws, which deserve to make it less difficult to set a hedging budget and may simply reduce the bureaucracy required to list shares.
“This will likely serve as a catalyst for more transactional activity,” he said.
Read more: Record sales of Mexican bonds expected to continue in 2024, Santander says
JPMorgan’s Dimon sounded just as enthusiastic during an interview with El Financiero Bloomberg TV in November.
“If you had to pick a country, this might just be the first opportunity,” Dimon said.
Morgan Stanley predicts the boom will continue this year, even as presidential elections in Mexico in June and the U. S. in November produce some volatility.
“We’ve noticed that Mexico is emerging very strongly in terms of deals,” said Alessandro Zema, co-head of investment banking for Latin America at Morgan Stanley.
Real estate investment trusts accounted for the lion’s share of stock sales in Mexico last year. In June, commercial real estate developer Corp. Inmobiliaria Vesta SAB raised $446 million through a stock sale in New York, the amount through a Mexican corporation in the United States in more than a decade. In December, it raised another $149 million. Traxion, a transportation and logistics company, was sold for $254 million as part of an add-on offering in Mexico in August.
This year will likely see the initial public offering for Mexican industrial real estate trust Fibra Next, which pulled its up to $1.2 billion sale last year after a last-minute snag over the company’s tax status. It’s set to be the country’s largest IPO since 2018.
Corporate bond sales are expected to continue their momentum in early 2024 as corporations increase spending, according to Felipe García Ascencio, executive leader of Banco Santander’s Mexican unit. Last year’s exhibit passed through some of the country’s largest corporations, including billionaire Carlos Slim’s America. Móvil SA and the food manufacturer Grupo Bimbo, owner of Sara Lee brand breads.
As capital markets gain momentum, investors will likely look for “big, successful, well-established brands,” said Facundo Vazquez, head of capital markets for Latin America at Goldman Sachs. Startups and small tech corporations are no longer the priority, as investors need “size and liquidity. “
Investors also appreciated the central bank’s efforts to curb inflation, Vazquez added. After raising rates in 2021, Mexico is expected to take one of the region’s most prudent approaches to reducing borrowing costs, demonstrating its commitment to price stability.
“They’re going to do whatever they want to fight inflation,” Vazquez said. “That’s the explanation for why everyone in Mexico is optimistic. “
—With those of Felipe Saturnino and Kevin Simauchi.
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