Mexican Earnings Beat Estimates But Stocks Don't Get the Message

(Bloomberg) -- Earnings season has all but wrapped up in Mexico and while most companies posted numbers that pleasantly surprised analysts, the country's stocks are lagging behind the rest of Latin America.

Among the region's biggest economies, the benchmark Mexican equity index is down 3.5 percent this year in local currency terms, compared with a 13 percent gain in Brazil and 9.8 percent advance in Argentina. Chile, Peru and Colombia are also besting Mexico.

Analysts say Mexican shares are weighed down by concern the North American Free Trade Agreement will fall apart and that this year's presidential elections could usher in a less business-friendly government, offsetting the positive earnings momentum. But investors' reticence also has a lot to do with expectations for subpar economic growth.

While Mexico's gross domestic product is forecast to rise 2.2 percent this year, Brazil's may grow 2.5 percent and Argentina's may expand 3.3 percent, according to economists surveyed by Bloomberg.

In Mexico, inflation and high interest rates are a drag. Economic growth unexpectedly slowed last quarter amid a steeper-than-forecast contraction in industrial production and modest services expansion, according to figures released Friday. Consumers appear to be struggling under the weight of steeper borrowing costs. And companies have put investing decisions on hold as they wait to see who wins the July 1 ballot.

Bradford Jones, who manages the Latin American Opportunities Fund at Sagil Capital, says he's been swapping out of Mexican stocks to buy “better growth stories in Brazil and Argentina.”

--With assistance from Richard Richtmyer

To contact the reporter on this story: Michelle F. Davis in Mexico City at mdavis194@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Andrew Dunn

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