After two quakes, NAFTA worries

Oct 16, 2017 - Caribbean: Texas (hurricane Harvey, 84 dead), Florida (Irma, 127 dead), Puerto Rico (María, 243 dead) and West indies (José, 4 dead). Investment were not significantly .... belonging to the Ministries of Defense (SEDENA), Navy (SEMAR) and the Federal Police. In addition 439 volunteers arrived from 13 ...
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Emerging Markets Institute Monthly perspective | October 16, 2017

After two quakes, NAFTA worries SUMMARY  Peso investments still positive YTD September 2017, despite two strong quakes in Mexico and major hurricanes in the US and Caribbean.  As the 4th round begins, NAFTA worries are affecting Mexican investments.  Foreseeable global risks: failure of US growth agenda, problems in Brexit, oil prices, geopolitics (Korea), high asset prices, central bank policies, global slowdown.  Local risks: NAFTA renegotiation, 2018 elections.  Quakes unlikely to affect Mexican markets short term, but could affect 2018 elections.  New investment scenarios 2018 with probabilities: positive (20% vs. 30% previous), negative (40% vs. 30%), middle (40%, same).  Retain ILS medium term overweight, possible diversification to nominal debt, stocks at benchmark and REITs under benchmark. “In three words I can sum up everything I've learned about life: it goes on.” – Robert Frost

September: natural disasters have no material effect on investments On September 7 and 19, there were major earthquakes in Mexico. There were also hurricanes in the US and the Caribbean: Texas (hurricane Harvey, 84 dead), Florida (Irma, 127 dead), Puerto Rico (María, 243 dead) and West indies (José, 4 dead). Investment were not significantly affected YTD (Figure 1). Best investments YTD in US$ were: EM equities, REITs, and Mexican equities. As the 4th round begins, NAFTA worries are affecting Mexican investments. In this Perspective, we analyze the global investment environment and the two Mexican quakes: human and material damage, immediate political economic and social effects, and possible effects in the future. We lower the probability of the positive scenario for 2018 from 30% to 20%. Figure 1. Investments: performance Jan-Oct2017 (% pesos). Source: Bloomberg, Franklin Templeton ENGLISH

Acciones M. Emergentes

18.78

FIBRAS

12.76

IPC

11.37

Bonos M

7.33

Acciones MD y ME

7.32

Udibonos

6.63

MX Guber

6.50

Acciones M. Desarrollados

5.97

Cetes

5.23

S&P

2.58

ORO

0.17

UMS

0.17

US TREASURIES

-9.57

Dólar

-9.64

WTI

-14.35

1

Monthly perspective

October 16, 2017

POLITICS Franklin Templeton Servicios de Asesoría Mexico US North Korea Following nuclear tests by North Korea (NK), the last and biggest taking place on September 3, US Secretary of State Tillerson declared that he wanted to begin talks with NK. However, he was undermined by President Trump who suggested that Tillerson “save his energy”. The US Treasury declared unilateral sanctions against 8 NK banks and 26 individuals. Anton Morozov, a Russian legislator who visited NK from October 2-6, reported that it was preparing more tests for a long range missile that could reach the West coast of the US. GERMANY Federal elections In the September 24 presidential elections, Ángela Merkel won her fourth term, as expected. The extreme right party AfD (Alternativ für Deutschland) obtained 12.6% of parliamentary votes, with 94 seats, entitling it to receive 16 mn. euros, making it the third political force in the country. UNITED KINGDOM Brexit Latest news indicates that May and UK Finance Minister Philip Hammond are preparing a “Soft Brexit” proposal that implies a gradual implementation and the retention of ties with the EU, which has been strongly criticized within his own party and the opposition. On October 3, the European parliament requested a postponement of the next stage of negotiations as progress so far has not been sufficient. Although the request was not mandatory, the next meetings have been scheduled for October 19-20. Issues to be determined are: UK cos