Citigroup Says ‘More Bad News’ in Mexico Warrants Trader Caution
(Bloomberg) -- As if things weren't bad enough for Mexican stocks, they could now get even worse after a weak earnings season, according to Citigroup Inc.
The bank said it's becoming increasingly cautious on Latin America's second-largest economy as prospects for a further slowdown in activity hampers the outlook for corporate profits. Fourth-quarter earnings were 26 percent below estimates, implying that forecasts for 2019 might be too high, Citigroup Research strategist Julio Zamora wrote in a note to clients.
It's “more bad news,” New York-based Zamora said, reiterating a market-weight recommendation for the country's equities. “The 4Q miss makes revisions to earnings more necessary. Mexico is cheap relative to history, but ratings, politics, interest and inflation rates stand in the way.”
Mexico's economy slowed more than expected in the fourth quarter amid austerity measures implemented after President Andres Manuel Lopez Obrador took office. Growth is expected to decelerate to 1.7 percent this year from 2.1 percent in 2018 as the U.S. cools down and uncertainty over the country's policies weighs on private investment. Meantime, the nation's stock benchmark trades at 13 times estimated earnings, or 21 percent below the average of the past decade, according to data compiled by Bloomberg.
--With assistance from Ricardo Strulovici Wolfrid and Cyntia Barrera Diaz.
To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Justin Villamil in Mexico City at jvillamil18@bloomberg.net
To contact the editor responsible for this story: Rita Nazareth at rnazareth@bloomberg.net
©2019 Bloomberg L.P.
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