Mexican Exchange Signals Uncertainty on Economy

IF you don't mind abrupt ups and downs, the Mexican stock market can be a great place for investors.

In 1991, it ranked as one of the world's hottest markets. Last year, it buffeted investors before posting an annual gain of 23 percent, the sixth consecutive year of gains. But lately, the trend has been predominantly earthward.

In the last month, the Bolsa Mexicana de Valores has tumbled 14 percent. Merrill Lynch recently downgraded the market from "positive" to "neutral."

"We're going through a rough period. There's a lot of uncertainty now," says Antonio Esteinou, research director at Invermexico, a Mexico City brokerage firm. Investors are selling stocks for several reasons, he says, including:

* Good, safer returns can be found in Mexican federal treasury certificates (knowns as CETES). Investors prefer to buy 28-day CETES at about 18 percent than risk the volatility of the stock market. Inflation is running at about 10 to 12 percent.

* Possible delays in implementing the North American Free Trade agreement. President Clinton has called for parallel legislation covering the environment and labor. Mexican President Carlos Salinas de Gortari recently told the Washington Post that Mexico already has taken adequate steps to address both of these concerns, but would proceed nonetheless with side accords in order to help NAFTA's approval by the United States Congress. "The great majority believe it will become a reality, but negotiations ha ven't started yet and it all may be held up in the US Congress," Mr. Esteinou says. Canadian Prime Minister Brian Mulroney's announcement not to seek reelection did nothing to allay concerns about NAFTA's future.

* Concern that the US economy may not recover as rapidly under the Clinton economic plan. Higher taxes on energy and slower manufacturing growth will limit the growth in Mexican exports to the US.

The Mexican economy is already experiencing a sharp slowdown. The government is making efforts to bring inflation down from 12 percent last year to under 10 percent this year. It has curbed government spending and tightened up on credit available for loans. Moderate projections

Last year the Mexican economy grew at about 2.7 percent, according to unofficial estimates. This year most economists project 2.1 to 2.7 percent growth rates. But the first half is likely to be at a sluggish 0.5 to 1.0 percent expansion rate.

"The government wants to secure a single-digit annual inflation rate before they start stimulating the economy in the second half, leading up to the 1994 elections," says Abel Hibert, economist at CIEMEX-WEFA, a Mexico City-based consulting firm.

"We'll probably see another one to three months of volatility before the stock market starts to turn around. Interest rates will start to come down," Esteinou says. Investors show confidence

It's a plus for the peso and the government's economic plans, says Mr. Hibert, that foreign investors are not fleeing Mexico but just switching investment vehicles. Indeed, in Latin America, Mexico was the No. 1 recipient of foreign investment in 1992.

The Mexican stock market capitalization was $137 billion in 1992. Of that total, foreign investors owned $28.69 billion, up 54 percent over the year before. About 60 to 70 percent of the government treasury certificates are foreign owned.

One US money manager with major Mexican holdings, says that foreign ownership is driving the Mexican stock market more than what's happening in the Mexican economy.

"The Mexican market has paralleled the Nasdaq over-the-counter market," says the money manager. "The US market is very expensive now historically. Small stocks ran up in anticipation of the US recovery. They're stumbling now because the fear the Clinton tax package will be a set back."

He says that US fund managers are lightening up their portfolios by selling American Depository Receipts (ADRs) of Mexican stocks such as Telmex, which constitutes almost 20 percent of the Mexican market index.

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