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Mexican Financial Markets. Mexico’s Economic: Highlights. GDP: $621 B Largest in Latin America 12 th largest of the World 8 th Largest exporter of the world 4 th Largest producer of oil. Economic Development 1950-1999. The Mexican Miracle: 1950-1970. - PowerPoint PPT Presentation
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Mexican Financial Markets
Mexico’s Economic: Highlights
GDP: $621 B GDP: $621 B Largest in Latin AmericaLargest in Latin America 1212thth largest of the World largest of the World
88thth Largest exporter of the world Largest exporter of the world 44thth Largest producer of oil Largest producer of oil
Economic Development 1950-1999
The Mexican Miracle: 1950-1970
Average growth: 6.7% Inflation: 4.2%Average growth: 6.7% Inflation: 4.2% Fiscal and Monetary DisciplineFiscal and Monetary Discipline Growth based on import substitutionGrowth based on import substitution Investment in infrastructureInvestment in infrastructure
The Downturn: 1970-1982
Average growth: 6.2% Inflation: 23.8%Average growth: 6.2% Inflation: 23.8% New oil reserves foundNew oil reserves found Growth based on government spendingGrowth based on government spending Government debt grew dramaticallyGovernment debt grew dramatically Ended with the 1982 crisis:Ended with the 1982 crisis:
Government defaulted on its debtGovernment defaulted on its debt Dramatic devaluation of the pesoDramatic devaluation of the peso
Adjustment: 1982-1988
Average growth: 0.0% Inflation: 94.6%Average growth: 0.0% Inflation: 94.6% Priority inflation abatementPriority inflation abatement Fiscal DisciplineFiscal Discipline Beginning of privatization and of transition Beginning of privatization and of transition
to an open economy (GATT)to an open economy (GATT)
The Salina’s Years: 1988-1994
Average growth: 0.0% Inflation: 94.6%Average growth: 0.0% Inflation: 94.6% The “Pactos”The “Pactos” Structural Reforms:Structural Reforms:
PrivatizationPrivatization Free tradeFree trade
Renegotiation of external debt “Brady plan”Renegotiation of external debt “Brady plan”
Salinas Years: Results
Pactos were effective controlling inflationPactos were effective controlling inflation 1987: 159.2% vs 1994: 7.1%1987: 159.2% vs 1994: 7.1%
At the same time GDP grew 3.3% in 1994At the same time GDP grew 3.3% in 1994 Exports were more than double those in Exports were more than double those in
1987 reaching $61 B1987 reaching $61 B
What went wrong? 1994 Crisis
A widening of the current account deficit that A widening of the current account deficit that reached almost 8% of GDPreached almost 8% of GDP
Strong appreciation of the Real Exchange RateStrong appreciation of the Real Exchange Rate Diminishing domestic savings rate (15% of GDP Diminishing domestic savings rate (15% of GDP
in 1994)in 1994) While financing to the public sector was growing While financing to the public sector was growing
extremely fast (from 5% of GDP in 1987 to 45% extremely fast (from 5% of GDP in 1987 to 45% in 1994)in 1994)
Political assassinations and uprising in ChiapasPolitical assassinations and uprising in Chiapas
Zedillo’s Years: 1994-2000
New stabilization planNew stabilization plan Refinance short term debtRefinance short term debt Rescue the banking sectorRescue the banking sector
Economic growth resumed in 1996 and was Economic growth resumed in 1996 and was strong until 2000strong until 2000
Inflation lowered to historical levelsInflation lowered to historical levels
Challenges going forward
Fiscal reform:Fiscal reform: Reduce fiscal evasionReduce fiscal evasion Reduce dependence on oilReduce dependence on oil
Electric sector reformElectric sector reform Reduce dependence on US economyReduce dependence on US economy Extremely unequal income distributionExtremely unequal income distribution
Mexican Stock Exchange
Founded in 1886Founded in 1886 The Stock Market Law in 1975 triggered The Stock Market Law in 1975 triggered
the development of the Mexican Stock the development of the Mexican Stock ExchangeExchange
The devaluation of 1976 also helped to The devaluation of 1976 also helped to develop the marketdevelop the market
Great performance until 1982 crisisGreat performance until 1982 crisis
Mexican Stock Exchange
Market cap grew from 3% of GDP in 1982 Market cap grew from 3% of GDP in 1982 to 45% in 1994to 45% in 1994
Over that period there were 76 IPO’sOver that period there were 76 IPO’s The government also helped developed the The government also helped developed the
market:market: Fondo MexicoFondo Mexico PrivatizationsPrivatizations
Historical Returns
Market Cap and IPO’s
International Comparisons
Securities Financing
Market Cap in 2001
Market Cap and IPO’s
Why this happened?
Corporate Governance IssuesCorporate Governance Issues Absence of Institutional InvestorsAbsence of Institutional Investors Mexican firms migrated to other marketsMexican firms migrated to other markets New Reforms to the Law of Stock Market New Reforms to the Law of Stock Market
Law(2001): Law(2001): Improve protection to investorsImprove protection to investors Increase transparencyIncrease transparency Access to the great public to capital marketsAccess to the great public to capital markets