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Mexico votes for status quo -- Stability for U.S. trade
July 5, 2006
Although too close to call, Sunday’s Presidential election in Mexico will probably go to Felipe Calderon. He is outgoing President Vicente Fox’s choice and a member of the same PAN party.
For the last three years, it looked as if the populist candidate, Manuel Obrador, was going to win. This would have been a powerful blow to U.S. trade policy in Latin America, as Mexico has been a large U.S. ally and trading partner. If Obrador had won, it would have been another win for Venezuelan President Hugo Chavez’ “Bolivarism” nationalist movement as well.
What It Means:
With the probable election of Mr. Calderon, Mexico will remain a strong U.S. trade ally. Trade with the U.S. and Canada has tripled since the implementation of NAFTA in 1994. Mexico has more than 90% of trade under free trade agreements, including 12 free trade agreements with over 40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan.
Their GDP growth rate is 3%, and their GDP per person is $10,000, 1/4 of the U.S. amount but higher than any other Latin American country save Chile and Cost Rica (both around $11,000 GDP per person).
Action Steps:
Continue to maintain Latin American countries as part of your emerging markets portfolio. This election means continued economic stability, which means greater returns with less volatility. It is better to have a Latin American, or emerging markets, fund than a Mexican fund, for two reasons:
- Mexico’s economy is only growing at 3% per year, which is about the same as the U.S., and
- Single country funds are too narrow, and therefore too risky, for the average investor.
Source: various news web sites, CIA Factbook on CIA web site
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