Ten Year Performance of the Mexican Stock Market
Before we analyze the history of the Mexican Stock Market or Bolsa, let's first consider the strength of the Mexican Peso. Ten years ago, the MX Peso was worth 9.7 cents and today it's worth 9.5 cents; essentially unchanged. Even though the Mexican Peso is not fixed to the US Dollar, the graph below clearly shows that the Peso has held firm with the Dollar at a rate of approximately 10:1 during the past decade, trading in a range from $.088 US / MX Peso to $.111 US / MX Peso:
One of the most significant reasons for the firm currency in Mexico must be attributed to the policies of the new governing party that has been in control since 2000. Mexico has been governed by Harvard alumni during most of the timeframe shown above and will continue under the same leadership for at least another four years. The PAN party, led first by President Fox and currently by President Calderon, both Harvard graduates, has brought Mexico from a Third World Country to a Newly Industrialized Country (NIC) standing in a matter of eight short years. Among their numerous accomplishments, they have cracked down on corruption, have promoted free market capitalism while maintaining a firm Peso / Dollar relationship, and have elevated tourism to the top of their list of strategic objectives.
As an NIC, Mexico has joined the ranks with countries such as China, India, Brazil, Turkey, etc. en route to becoming First World Industrialized Countries. Recently, Mexico has changed from being a beneficiary to a full contributor to the United Nations Development Program.
While President of Mexico, Fox established a new Ministry of Security and Police, doubled the pay for police officers, and cracked down on crime by improving the Mexican judicial system which had been rife with corruption and ineptitude. The Human Development Index (HDI) is a comparable measure of life expectancy, literacy, education, and standard of living for countries worldwide. During Fox’s presidency, Mexico maintained an HDI of 0.8 which represents high development. In comparison, many countries such as Canada, France, and Great Britain, generated low increases and even some decreases in HDI figures. Real wages dropped 305% in Mexico from 1976 to 1999, however since PAN has been in office, real wages have not only stabilized, but are starting to increase. Fox represented the Alliance for Change. He was one of the few Mexican presidents to avoid a major economic upheaval during office, whereas previously, the Mexicans were accustomed to devastating Peso devaluations. As shown above, during the past decade the Peso has held firm at about 10 Pesos per US Dollar while the Mexican Gross Domestic Product (GDP), Foreign Direct Investment (FDI), and Domestic Investment have all risen at a brisk pace. As a note of interest, Mexico is now the second largest FDI recipient among developing countries and is also the seventh largest exporter in the world. Obviously, with the rapid growth of the economy, the Mexican Bolsa has virtually exploded in value.
Fox’s term expired in 2006, when his successor, Felipe Calderon, also with the PAN party, won a very close election. He supports balanced fiscal trade, flat taxes, lower taxes, and free trade. His motto is to “Drive Mexico into the Future” which represents privatization, liberalization, political freedom, and market control of the economy. With these fiscal policies and close ties to the US and Canada, it’s no wonder that the Mexican stock market has performed so well, advancing more than six-fold during the past decade per the chart below:
The above 10 year chart compares the Exchange Traded Funds (ETF’s) of Mexico and Canada to the S&P 500 US stocks. The EWW fund consists of a large basket of Mexican stocks and trades on the American Stock Exchange.
You can see where the 10 year gain of the S&P 500 was only 25% while the Canadian stocks advanced approximately 200% and the Mexican stocks a whooping 600%. If you were to average the gains over 10 years and compound them annually, the US stocks have gained at rate of 2% per year, the Canadian stocks at 7%, and the Mexican stocks at 20% per year.
Put another way, a $1,000 investment in the US after 10 years is worth $1,250 today, in Canada it’s worth $3,000 and in Mexico it’s worth $7,000! A gain of $6,000 in Mexico while only $250 in the US, i.e., 24 times as much! Just imagine, a $200,000 investment ten years ago compounded annually at 20% would now be worth about $1,400,000 or if the gain were taken out each year, you would have had a $40,000 per year income and would still have your original $200,000 principal. Keep in mind that you can live like a king in Mexico on $40,000 per year; even better if you’re retired and have social security income to add to your investment gains!
Just recently, we have witness a very tenuous economy in America and a near crash of the US stock market which has affected all economies and stock markets throughout the world. Below is a chart indicating the affect that the slumping American economy has had on the major economies of the world:
As you can see, while the US stock market has dropped by 15.4%, the Canadian market fell by only 6.6% and the Mexican market by a mere 4.7%, making it the second least affected market in the world. During the past decade, the Canadian Dollar has strengthened significantly against the US Dollar and the Canadian stock market has far outperformed the US market, falling off its recent highs by a much lesser extent. These facts combined with the cold winters in Canada, provide an explanation for why the Canadians continue to flood the Mexican real estate market.
We were among the first of the fortunate retirees to move to Puerto Vallarta, Mexico in 1997 and have ridden the entire economic wave of growth and prosperity. Not only have our investments in the Mexican Bolsa multiplied by a factor of six but our real estate investments have at least tripled in value.
During the past decade we have witnessed a construction boom in Vallarta and an ever increasing influx of retired North Americans as the population of Vallarta has exploded to 350,000 residents. We have seen a complete revamping of the city’s infrastructure with new water treatment facilities, power distribution systems, new and improved roads and highways, a tripling of the size of the International Airport, a tripling of the size of the Marine Terminal, a huge new Bus Terminal, a huge modern Convention Center, etc. Along with the increased infrastructure, all of the “big box” stores including Sam’s Club, Mega Wal-Mart, Costco, Home Depot, Office Supply, etc. have moved to Vallarta. A half a dozen new golf courses have been built, a number of new yachting marinas have been built and existing ones enlarged, and clubs for all other activities have sprung up throughout the town.
All of this growth has taken place in PV while the city managers have maintained the city’s atmosphere of a quaint Mexican fishing village. The cobblestone roads, the sound of mariachis in the air, the colorful tropical flora and fauna, the magnificent sunsets, the beautiful beaches along the Banderas Bay shoreline, and the majestic Sierra Madre Mountains as a backdrop will always provide the feeling of being in Paradise. This continues to hold true while the explosive growth in Vallarta now provides the creature comforts and conveniences of a large modern city, i.e. the best of everything is available in PV where the average daily temperature from November through May is 73*F with virtually no rain.
In summarizing, if you’re approaching the end of your career, retiring and investing in Mexico is worth your consideration. It was the best decision we ever made; one that we’ll never regret after enjoying eleven years of fun and prosperity. At this time, we see very few signs of a slowdown in Puerto Vallarta and living conditions couldn’t be much better; however, as they say in the investment community, “past performance is no guarantee of future results”!
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