Mexico Strategy - This Time is (a Little) Different

8/3/2019 Mexico Strategy - This Time is (a Little) Different

1/29www.morganmarkets.com

Latin America Equity Research12 October 2011

Mexico StrategyThis Time Is (a Little) Different

Latin America Equity Strategy

Ben Laidler AC

(1-212) [email protected]

J.P. Morgan Securities LLC

Emy Shayo Cherman(55-11) [email protected]

Banco J.P. Morgan S.A.

Vinay Joseph(91-22) 6157 [email protected]

J.P. Morgan India Private Limited

See page 24 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in makinvestment decision.

Mexico better prepared for a possible developed world recession this time, but risk/reward remains unattractive, given downside risk to US growth,Mexico earnings, and even Chile now cheaper. See our 27pg data tracker.

This time is (a little) different: Crisis is EU centric (and China only 5%Mexico exports); no derivatives problems; public finances are healthier;the Central Bank has more reserves. However, the Streets Mexico GDPnumbers look too high, and the historical beta to US/EU GDP is 1.6x.US growth risks have eased but may return given the 1.7% fiscal drag in2012e and little sign of political consensus. Mexican monetary policy isset to do the heavy lifting, as fiscal policy stays tight. Its a long way off,

but we do see reform upside from a July 2012 PRI presidential victory.

Peso the crisis shock absorber to date, as EMs 3rd-most liquidcurrency, and 80% of the negative MSCI Mexico return in the last threemonths has come from the FX. Once again illustrating that whilst thestock market may be defensive, the FX is not. The peso is now,however, both technically and fundamentally undervalued.

Too concerned on Spanish banks. They are lending, not retrenching,similar to Banamex/Citi in 2008/9. Spanish bank loans as percentage of GDP is only 5.9% (vs 21% in Chile) as financial penetration is so low.

UW on economic and earnings downside and high valuations (higher than they look). Market has outperformed given its 0.8x beta, 63%

staples/telcos index composition, and high S+P500 correlation. It will,however, significantly lag a multiple rerating-driven recovery. Mexico ismore expensive than Chile for first time in over a decade, despite Chileslower cost of capital, taxes, and higher growth. Mexicos P/E anddividend are more than one STD from average. Positioning is supportiveas market is a consensus UW and the Afores have not been buyers.

Earnings expectations falling and remain exposed at near 3x nominalGDP growth. They have fallen from 31% to 19% in last four months, andwe see further downside as we head into earnings season. GDPexpectations remain too high. They should, however, outperform EMunder a worst case scenario, as they did by nearly 10pp in 2008/9.Large caps where earnings have not been cut include Alfa, Banorte,KOF, Modelo.Model portfolio: Walmex, Banorte, First Cash, Cemex, focused ondomestic consumer/financial intermediation stocks, with some USoptionality, as the EASI index has moved into positive territory.

Chile 12m Fwd P/E Premium/Discountvs Mexico

Source: MSCI, Datastream.

Bank Loan Growth* 2008/9 Crisis vsToday

Source: CNBV, J.P. Morgan. * Total gross loans, eof period vs beginning of period.

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

D e c - 9 5

D e c - 9 7

D e c - 9 9

D e c - 0 1

D e c - 0 3

D e c - 0 5

D e c - 0 7

D e c - 0 9

Banks 1H08-1H09 YT

Banamex 1.5% 8.0

Bancomer 4.8% 2.

Santander 7.0% 32.

Banorte 5.8% 10.

System 2.3% 8.0


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Ben Laidler (1-212) [email protected]

This time is (a little) differentFour reasons it is different this time around: 1) US is not center of the crisis (only5% of Mexico exports go to EU vs 80% to the US see Table 1 ); 2) No corporateswith toxic derivatives; 3) Public finances are healthier; and 4) Banxico hassignificantly more reserves (plus a $72 billion IMF credit line). Mexico is alsosomewhat under-exposed to another risk, that of a Chinese hard landing ( Fig. 1 ),with exports to China only 1.4% of exports (24.4% in Chile).

Growth risks still significant, though. Yes, the crisis is emanating from Europe,where we forecast a mild recession, but US growth risks have not gone away (despiteshort-term relief from a rebounding EASI index) and arguably the biggest test is tocome, with a dramatic 1.7% GDP US fiscal drag expected in 2012 unless US

politicians can reach a compromise (not looking likely today). We have the mostcautious GDP view on the Street, with only 2.5% Mexican GDP growth for 2012,

below estimated 3% potential GDP. This is above our 1.3% US GDP forecast, whenthe historical GDP beta with the US/EU is 1.6x ( Table 3 ). This was starklyillustrated in 2009, when US GDP fell 2.6%, and Mexicos fell 6.1%. Mexicosoutlook is relatively supported by a more resilient manufacturing cycle givenimproved competitiveness, limited consumer downside given pent-up demand, andthe recovering credit cycle.

Contagion channels likely more indirect through overall consumer and corporateconfidence, and tighter global credit conditions. Concern has especially focused onthe more than 40% of total consumer credit in Mexico that is from Spanish banks.However, they do not operate as foreign bank subsidiaries, are 95% locally funded,and overall financial intermediation (15%) is very low. Spanish banking loans as a

percentage of GDP is only 5.9% (Chile is 21%). A large impact was not seen here in2008/9 with Banamex/Citibank, and the Spanish banks do not seem to haveretrenched YTD, though Bancomer is losing market share ( Table 4 ).

The peso will come back ( Fig. 3 and 4 ). It has been the main shock absorber toweaker global growth prospects, as the 3rd-most liquid currency in EM after HongKong and Taiwan. The weaker peso has accounted for 80% of the negative 17% 3mMSCI Mexico return. It is significantly undervalued, both technically andfundamentally (and the one EM currency to have closely tracked fair value over time), though we do not expect any meaningful appreciation soon , given concernsabout global market volatility, as Banxico moves to ease rates, and with authorities

not facing any inflation pressure. We now forecast a year-end 13.25 for 2011 and11.80 for 2012.

Policy flexibility limits self imposed. We see limited though self imposed fiscaloptions, with a budget deficit target (-2.2%/GDP) only slightly lower than 2011elevels and with the fiscal responsibility law limiting any electoral spending.Therefore, monetary policy should do any heavy lifting, which is very doable giventhe benign inflation backdrop. Whilst this has likely been impacted by the FXdepreciation, the inflation pass-through is likely lower than historical. We expect a25-bp rate cut in the December meeting.

EU centric, no derivatives,healthier public finances, morereserves. China only 5% Mexicoexports

Mexico historical beta to US/EUGDP is 1.6x. US growth riskseased short term but may returngiven 1.7% fiscal drag in 2012

Spanish banks still lending inMexico, not retrenching. Similar to Banamex/Citi in 2008/9

Peso the shock absorber,accounting for 80% of negativeMSCI Mexico return, as EMs no3FX. Is now technically andfundamentally undervalued

Monetary policy doing the heavylifting, as fiscal policy stays tight


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July 2012 elections coming into focus as a positive. Polls show the PRI stable at39% of voting intentions vs the PANs 19%. Ex-Mexico State Governor Pea Nieto

remains the favorite, with popularity close to 50% vs 16% for PANs Vazquez Motaand 10% for PRDs Lopez Obrador, according to Mitofsky polling. The outlook for aPRI presidency, alongside controlling Congress, could open the possibility of executing a structural reform agenda, with fiscal and labor reform likely first.

We remain UW Mexico on a combination of growth downside both to consensusGDP expectations (3.3% 2012 vs JPM 2.5%) and earnings (MSCI Mexico 12m Fwdgrowth is 19%, nearly 3x nominal GDP growth), and high valuations, which have

been exacerbated by recent market outperformance and falling earnings. The marketshould moderately outperform on the downside but significantly lag the multiple-rerating-driven recovery we expect into 2012.

Mexico has outperformed in local and US$ terms in the recent sell-off, as

expected given its relatively low beta (0.8 vs EM), more defensive indexcomposition (63% staples and telcos), and high S+P500 correlation. Weakness has

been led by materials, homebuilders, and financials. Outperformance has been led bynon-commodity weak peso beneficaries and relative defensives such as Modelo,Bimbo, and Televisa. Our Mexico Defensives basket has outperformed theCyclicals basket by near 18% in the last month. With the US EASI index back into

positive territory, there is a case to add some cyclical risk ( Fig. 2 ).

Valuations are very high. MSCI Mexico is trading on 13.8x 12m fwd earnings, anear 60% premium to Brazil, and one standard deviation over its long-term average.Its dividend yield is one standard deviation below its long-term average. It is alsotrading at a premium to Chile ( Fig. 5 ) for the first time in over a decade, despiteChiles lower cost of capital, tax rates, and higher potential GDP growth.

Medium-term risks remain on the competitive environment, with the enhancedenforcement powers under the new antimonopoly law, and the 50%+ of Mexicanmarket cap that is potentially exposed to this given oligopolistic market positions.Some pricing of this enforcement risk should constrain multiples.

Earnings downside still considerable. Comparing earnings now versus the 2008crisis. Peak 12m Fwd EPS growth was 25%, which fell to -9.3% by May 2009.Whilst dramatic, this EPS swing was moderate compared to peers Brazil (-44%),LatAm (-44.5%), and EM (-44.7%) as index composition is relatively defensive. Themore recent peak in Mexico earnings expectations was 31% in May, and this hascurrently fallen to 19%. Whilst a sharp decline, this still looks too high to us, at near 3x nominal GDP, with downside risks to consensus GDP in both the US and Mexico,and as we enter Q3 earnings season after at least two weak quarters of earningsreports from Mexico. Brazil 2011 earnings growth, by comparison, is less thannominal GDP and midsingle digits.

Reform upside out of the likelyJuly 2012 PRI presidentialvictory

Economic and earningsdownside and valuations high

Market outperformed on 0.8x

beta, 63% staples/telcos inindex, and high S+P500correlation

Chile cheaper than Mexico for first time in over a decade

Earnings expectations fallingand remain exposed, at near 3xnominal GDP growth


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Comparing stock EPS decline then vs now (Table 5 ). During the 2008-09 crisis,the largest EPS declines were seen at Penoles, Cemex, Grupo Mexico Alfa, Elektra,

and Grupo Carso, which all saw their EPS fall over 50% peak to trough. Currentlythe only companies not to have seen earnings cut are Alfa, Inbursa, Banorte, KOF,Urbi, and Modelo.

The market has moved to a consensus UW among EM investors, along with other export cyclical markets, such as Korea and Taiwan. Brazil remains the consensusOW in LatAm. The US$120bn Afore pension fund system remains heavily UW localequities (8.3% of AUM) and has been adding to foreign positions (10.5%). Fixedincome markets have also seen some unwind, with Mexican bonds well owned, andthe asset class seeing meaningful outflows.

The Mexico component of our model portfolio is Walmex, Banorte, First Cash,and Cemex. Walmex is trading at a sector average valuation, despite twice the

profitability and similar growth rates, whilst consumer recovery expectations are low,durables demand rebounding, and pent-up demand high. Banorte is trading at under 10x next years earnings, with a robust cyclical credit recovery, supported by verylow credit penetration. First Cash remains an attractive combination of strong organicgrowth, natural multiple rerating, and high transparency. The recent pullback on

perceived gold and FX exposures is overdone. Cemex valuations are at distressedlevels and equity optionality is high (10% of EV), especially with the US EASI indexin positive territory. US volume downside is arguably limited, the company FCF

positive, with limited upcoming maturities, and a significant asset base.

Table 1: Exports to the EU and Spain

Source: Comtrade, local central banks and statisticaldepartments, Cepal, aladi and J.P. Morgan. 1. GDP-weightedaverage. 2. Including Spain.

Table 2: Credit Profile (% GDP)

Source: IADB. 1. GDP-weighted average; 2. Including Spanishbanks.

Figure 1: Exports to China as share of total exports

Source: J.P. Morgan.

Large caps whose earnings havenot been cut include Alfa,Banorte, KOF, and Modelo

Positioning is positive. Market aconsensus UW and Afores havenot been buyers

Focused on domesticconsumer/financial

intermediation names, withsome US cyclical optionality


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Figure 2: Economic Activity Surprise Index

Source: J.P. Morgan Economics.

Figure 3: Deviations from long term real rade-weighted fair value (%)

Source: J.P. Morgan Economics, Bloomberg.

Figure 4: USD/MXN vs. ADXY and S&P 500

Source: J.P. Morgan.

Table 3: Impulse response to a US/EU GDP shock

Source: J.P. Morgan Economics.


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Table 4: Bank Loan Growth* 2008/9 Crisis vsToday

Source: CNBV, J.P. Morgan. * Total gross loans, end of periodvs beginning of period.

Figure 5: Chile 12m Fwd P/EPremium/Discount vs Mexico

Source: MSCI, Datastream.

Figure 6: Mexico 12 mth Fwd EPS fall during financial crises and current

Source: MSCI, IBES, Datastream.

Table 5: Mexico earnings trajectory 2008/9 Crisis vs today

2008-09 EPS 2011TD EPSMax Min % Decline Max current % Decline

Penoles 25.82 -1.7 (106.6) 42.51 42.24 (0.6)Cemex 4.42 0.01 (99.8) 0.15 -2.68 (1886.7)Grupo Mexico 0.29 0.07 (75.9) 0.42 0.34 (19.0) Alfa 8.82 2.83 (67.9) 13.83 13.83 0.0Elektra 27.74 9.12 (67.1) 25.22 19.39 (23.1)Grupo Carso 5.14 1.97 (61.7) 2.6 2.29 (11.9)Mexichem 2.47 1.25 (49.4) 3.54 3.21 (9.3)Telmex 1.45 0.78 (46.2) 0.99 0.85 (14.1)Inbursa 1.13 0.75 (33.6) 1.42 1.42 0.0Banorte 4.31 2.95 (31.6) 4.62 4.62 0.0GAP 2.64 1.84 (30.3) 2.44 2.24 (8.2)Femsa 2.94 2.15 (26.9) 4.92 4.88 (0.8)Grupo Televisa 3.82 2.91 (23.8) 3.32 2.92 (12.0)KOF 4.79 3.7 (22.8) 6.76 6.76 0.0Urbi 2.88 2.34 (18.8) 2.51 2.51 0.0Grupo Modelo 3.48 2.84 (18.4) 3.51 3.51 0.0Kimber 3.93 3.39 (13.7) 4.56 4.29 (5.9)Bimbo 1.09 0.96 (11.9) 1.58 1.41 (10.8) AC 3.58 3.17 (11.5) 4.02 3.62 (10.0) AMX 1.1 0.98 (10.9) 1.54 1.41 (8.4)Walmex 1.07 0.96 (10.3) 1.45 1.42 (2.1)Comparc - - - 2.27 1.53 (32.6)Minera Frisco - - - 2.67 2.3 (13.9)

Source: IBES, Datastream.

Banks 1H08-1H09 YTD 2011

Banamex 1.5% 8.0%

Bancomer 4.8% 2.4%

Santander 7.0% 32.4%

Banorte 5.8% 10.1%

System 2.3% 8.0%

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

D e c - 9 5

D e c - 9 7

D e c - 9 9

D e c - 0 1

D e c - 0 3

D e c - 0 5

D e c - 0 7

D e c - 0 9

707580859095

100105

0

+ 1 M

+ 2 M

+ 3 M

+ 4 M

+ 5 M

+ 6 M

+ 7 M

+ 8 M

+ 9 M

+ 1 0 M

+ 1 1 M

+ 1 2 M

+ 1 3 M

+ 1 4 M

+ 1 5 M

+ 1 6 M

+ 1 7 M

+ 1 8 M

+ 1 9 M

+ 2 0 M

+ 2 1 M

2008-09 Fall Current Fall


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MSCI Mexico: Market Performance and Valuation by Sectors and Stock

Sector/Stock Weightings% Total market cap ADTV*

US$ Mn US$ Mn PE PB DY 1M 3M 6M YTD 12M 1M 3M 6M YTD

Consumer Discretionary 10.6 29,118 30 30.3 5.1 0.3 -3.1 24.5 56.0 49.2 74.6 -8.3 9.5 37.3 38.0 62

Televisa 6.5 9,709 17 19.3 3.1 0.7 11.8 0.0 -0.2 -15.7 0.4 5.7 -12.1 -12.2 -22.1 -6.5

Elektra 3.6 18,101 9 37.8 6.4 0.2 -9.8 41.2 9 2.9 90.4 122.3 -14.7 24.2 69.7 76.0 106.

Urbi 0.5 1,308 4 8.8 1.2 0.0 -21.0 -24.5 -37.2 -38.5 -34.3 -25.3 -33.6 -44.7 -43.1 -38

Consumer Staples 28.4 84,750 93 27.0 4.1 1.4 8.0 0.0 2.0 4.6 16.2 2.2 -12.0 -10.2 -3.3 8.1

Walmex 10.3 43,874 46 28.6 4.7 1.2 7.9 -3.3 -8.8 -7.6 4.6 2.1 -15.0 -19.8 -14.6 -2.

Femsa 8.7 14,335 22 23.4 2.7 1.2 8.5 11.6 21.8 27.3 35.7 2.6 -1.9 7.2 17.7 26.2

Grupo Modelo 2.5 3,783 7 25.8 3.4 2.8 13.5 7.9 6.3 4.2 14.8 7.4 -5.1 -6.4 -3.6 6.9

Bimbo 2.3 9,614 5 24.2 2.8 0.5 13.2 -2.8 5.9 3.2 13.6 7.1 -14.5 -6.8 -4.6 5.7

Kimber 1.9 3,054 4 18.4 11.8 4.8 6.0 -2.1 1.7 -2.5 -7.3 0.3 -13.9 -10.5 -9.9 -13

Coca Cola Femsa 1.7 2,515 2 22.6 3.1 1.9 6.5 13.4 29.8 20.9 26.4 0.7 -0.3 14.2 11.8 17.7

Arca 1.0 7,575 6 33.4 2.6 1.8 -0.4 -6.5 11.1 31.8 56.5 -5.8 -17.7 -2.3 21.9

Financials 7.0 22,031 35 16.0 2.3 1.0 -2.8 -19.6 -21.0 -17.7 -9.9 -8.1 -29.3 -30.5 -23.9 -1

Banorte 3.4 7,329 23 13.1 1.4 0.4 -7.0 -23.8 -30.5 -28.8 -14.1 -12.0 -33.0 -38.9 -34.1 -20

Inbursa 2.5 12,306 8 17.8 2.2 1.3 -2.7 -19.2 -18.0 -9.5 -7.4 -8.0 -29.0 -27.8 -16.3 -13.

Compartamos 1.0 2,396 4 15.8 5.3 1.5 9.7 -8.8 -7.1 -26.5 na 3.7 -19.8 -18.3 -32.0 na

Industrials 4.3 13,560 18 11.6 2.1 1.9 2.7 -12.1 -11.4 4.2 26.8 -2.9 -22.7 -22.0 -3.7 18

Alfa 2.3 6,192 11 10.1 2.2 1.7 4.6 -11.8 -5.4 24.1 59.1 -1.0 -22.5 -16.8 14.8

GAP 1.1 1,641 4 19.2 1.0 3.1 -2.4 -3.3 -3.0 -9.0 4.9 -7.7 -15.0 -14.6 -15.9 -2.

Gcarso 1.0 5,726 4 11.1 2.2 1.8 2.1 -14.9 -20.2 -13.6 -1.9 -3.4 -25.2 -29.8 -20.1 -8.7

Materials 15.1 53,049 95 14.8 4.0 1.3 -12.1 -8.4 -7.5 -14.0 12.7 -16.8 -19.4 -19.7 -20.5 4

Grupo Mexico 6.4 19,430 45 9.2 2.6 2.6 -13.8 -18.5 -22.0 -34.4 -19.5 -18.5 -28.3 -31.4 -39.3 -25

Penoles 3.8 16,148 12 20.9 6.5 0.9 -8.6 19.6 22.3 20.1 68.0 -13.5 5.2 7.7 11.1 56.4

Cemex 2.0 2,994 23 NM 0.3 0.0 -38.1 -58.8 -61.5 -69.1 -59.6 -41.5 -63.8 -66.1 -71.4 -62

Minera Frisco 1.6 9,241 3 NM NM 0.0 -3.5 -12.6 -8.1 na na -8.7 -23.1 -19.1 na na

Mexchem 1.4 5,235 11 16.7 3.4 0.6 -16.5 -20.9 -14.8 -12.5 3.1 -21.0 -30.5 -25.0 -19.1 -4.

Telecoms 34.5 70,581 134 11.9 3.9 1.6 2.0 -0.2 -11.0 -12.1 -9.5 -3.5 -12.2 -21.7 -18.7 -1

AMX 31.6 62,884 119 11.7 3.9 1.1 2.4 -1.4 -11.7 -14.1 -12.2 -3.2 -13.3 -22.3 -20.6

Telmex 2.8 7,698 15 13.3 4.1 5.2 -0.5 9.6 -4.9 4.2 12.9 -5.9 -3.7 -16.3 -3.6 5.0

MSCI Mexico 100.0 273,090 405 16.0 3.9 2.4 0.0 -4.9 -8.1 -10.7 -1.0 -5.3 -16.0 -19.0 -17.2So urce: MSCI, Datastream, J.P. Morgan. Note:* ADTV is the 6 month average daily traded volume Update d as on 11 Oct 2011

Trailing Consensus Estimates LC Performance US$ Performance


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IPC Bolsa: Market Performance and Valuation by Sectors and Stock

Sector/Stock Weightings% Total market cap ADTV*

US$ Mn US$ Mn PE PB DY 1M 3M 6M YTD 12M 1M 3M 6M YTDConsumer Discretionary 13.6 33,538 43 30.1 4.8 0.4 -3.7 18.7 45.7 39.3 62.5 -9.0 4.4 28.2 28.8Televisa 6.9 9,810 17 19.3 3.1 0.7 11.8 0.0 -0.2 -15.7 0.4 5.7 -12.1 -12.2 -22.1 -6Elektra 3.8 18,077 9 37.8 6.4 0.2 -9.8 41.2 92.9 90.4 122.3 -14.7 24.2 69.7 76.0 1 06

Liverpool 0.9 1,348 4 NA NA NA 1.3 0.6 4.3 7.7 38.2 -4.2 -11.6 -8.2 -0.4 2Urbi 0.6 1,308 4 8.8 1.2 0.0 -21.0 -24.5 -37.2 -38.5 -34.3 -25.3 -33.6 -44.7 -43.1 -3Geo 0.4 696 4 6.3 1.1 0.0 -27.5 -35.0 -51.3 -63.0 -58.0 -31.5 -42.8 -57.1 -65.8 -60Homex 0.4 760 3 9.5 1.2 0.0 -23.2 -32.7 -46.5 -57.0 -55.8 -27.4 -40.8 -53.0 -60.2 -58TV Azetca 0.4 1,139 1 62.2 4.0 1.2 1.8 -21.7 -12.3 -14.7 -20.7 -3.7 -31.1 -22.8 -21.1 -2 Ara 0.2 401 1 8.1 1.2 1.9 -9.9 -28.4 -45.3 -46.3 -50.2 -14.8 -37.1 -51.9 -50.4 Consumer Staples 29.7 89,338 96 26.6 4.0 1.4 7.6 -1.3 -0.8 2.2 13.9 1.7 -13.2 -12.7 -5.5Walmex 12.4 43,703 46 28.6 4.7 1.2 7.9 -3.3 -8.8 -7.6 4.6 2.1 -15.0 -19.8 -14.6 -2Femsa 8.1 14,335 22 23.4 2.7 1.2 8.5 11.6 2 1.8 2 7.3 35.7 2.6 -1.9 7.2 17.7 26.Grupo Modelo 2.4 3,795 7 25.8 3.4 2.8 13.5 7.9 6.3 4.2 14.8 7.4 -5.1 -6.4 -3.6 6Bimbo 2.0 9,614 5 24.2 2.8 0.5 13.2 -2.8 5.9 3.2 13.6 7.1 -14.5 -6.8 -4.6 5Kimber 1.9 3,040 4 18.4 11.8 4.8 6.0 -2.1 1.7 -2.5 -7.3 0.3 -13.9 -10.5 -9.9 -13 Arca Continental 1.5 7,140 6 33.4 2.6 1.8 -0.4 -6.5 11.1 31.8 56.5 -5.8 -17.7 -2.3 21.9 Commerci 0.4 544 1 1.6 0.2 4.4 -1.3 -6.8 -5.6 24.1 68.2 -6.6 -18.1 -17.0 14.8 56Soriana 0.4 3,792 1 27.9 2.8 0.5 1.9 -15.9 -31.4 -29.3 -21.7 -3.6 -26.1 -39.7 -34.6 -27Chedraui 0.3 2,393 1 21.1 2.0 0.7 2.0 -7.5 -14.5 -11.3 -9.6 -3.6 -18.7 -24.8 -18.0 -15Gruma 0.2 981 1 6.9 0.8 3.0 3.6 -5.2 -2.7 -0.2 26.1 -2.0 -16.7 -14.4 -7.7 17Financials 5.6 10,680 29 13.7 2.4 0.7 -2.9 -20.1 -24.8 -28.2 -12.3 -8.1 -29.7 -33.8 -33.6Banorte 4.2 7,329 23 13.1 1.4 0.4 -7.0 -23.8 -30.5 -28.8 - 14.1 - 12.0 -33.0 -38.9 -34.1 -20Comparto 1.0 2,396 4 15.8 5.3 1.5 9.7 -8.8 -7.1 -26.5 na 3.7 -19.8 -18.3 -32.0 naBolsa 0.4 955 2 NA NA NA 5.8 -5.0 -15.0 -17.5 2.4 0.1 -16.5 -25.2 -23.7 -Healthcare 1.0 2,020 9 na na na 1.5 -5.7 -8.8 -13.6 -1.8 -4.0 -17.1 -19.8 -20.1Lab 1.0 2,020 9 na na na 1.5 -5.7 -8.8 -13.6 -1.8 -4.0 -17.1 -19.8 -20.1 -8Industrials 6.1 12,667 28 13.9 1.7 1.7 2.7 -8.7 -5.3 7.4 36.3 -2.9 -19.7 -16.6 -0.7 Alfa 3.5 6,191 11 10.1 2.2 1.7 4.6 -11.8 -5.4 24.1 59.1 -1.0 -22.5 -16.8 14.8 GAP 0.9 1,641 4 19.2 1.0 3.1 -2.4 -3.3 -3.0 -9.0 4.9 -7.7 -15.0 -14.6 -15.9 -2 Asur 0.5 1,542 2 23.8 1.0 3.9 8.3 7.2 10.1 5.9 20.4 2.4 -5.7 -3.1 -2.1 OHL Mexico 0.5 2,543 6 10.9 1.3 0.0 2.3 -4.9 -4.2 -4.7 na -3.3 -16.3 -15.7 -11.8 nICA 0.5 749 6 23.9 0.9 0.0 -11.8 -40.6 -44.4 -51.0 -51.3 -16.6 -47.8 -51.1 -54.7 -5Materials 15.0 53,023 95 14.8 4.0 1.3 -12.1 -8.4 -7.6 -13.8 12.6 -16.8 -19.4 -18.7 -20.1Grupo Mexico 6.9 19,430 45 9.2 2.6 2.6 -13.8 -18.5 -22.0 -34.4 -19.5 -18.5 -28.3 -31.4 -39.3 -2Penoles 3.4 16,148 12 20.9 6.5 0.9 -8.6 19.6 22.3 20.1 68.0 -13.5 5.2 7.7 11.1 56.Cemex 1.9 2,994 23 NM 0.3 0.0 -38.1 -58.8 -61.5 -69.1 -59.6 -41.5 -63.8 -66.1 -71.4 - 6Mexchem 1.5 5,235 11 16.7 3.4 0.6 -16.5 - 20.9 -14.8 -12.5 3.1 -21.0 -30.5 - 25.0 -19.1 -4Minera Frisco 1.3 9,215 3 NM NM 0.0 -3.5 -12.6 -8.1 na na -8.7 -23.1 -19.1 na nTelecoms 29.0 69,041 135 11.9 3.9 1.6 2.0 -0.3 -11.1 -12.2 -9.6 -3.6 -12.3 -21.8 -18.8 AMX 26.0 60,887 119 11.7 3.9 1.1 2.4 -1.4 -11.7 -14.1 -12.2 -3.2 -13.3 - 22.3 -20.6 Telmex 2.7 7,692 15 13.3 4.1 5.2 -0.5 9.6 -4.9 4.2 12.9 -5.9 -3.7 -16.3 - 3.6 5 Axtel 0.3 462 1 11.8 0.9 0.0 -8.0 -23.3 -29.8 -30.2 -34.0 -13.0 -32.6 -38.3 -35.5 IPC Bolsa 100.0 270,306 434 19.6 3.9 1.3 -0.4 -7.4 -10.4 -12.6 -2.3 -5.8 -18.5 -21.2 -19.2Source: MSCI, Datastream, J.P. Morgan.* ADTV is the 6 month average daily traded volume Updated as on 11 Oct 2011

Trailing Consensus Estimates LC Performance US$ Performance


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11/29

11



J.P. Morgan Stock Coverage

Name Ticker JPM Price Mkt Cap ADTV Covergin

Rating 11 Oct 11 $mn $mn 1d 1w 1m 3m Y TD 11E 12E 11E 12E 11E 12E 11E 12E 11E 12E 11E 12E America Movil SA AMX US OW 22.8 88,084 17 0 1.3 4.5 -2.1 -11.7 -2 0.4 12.2 10.9 1.3 1.2 0.3 0.3 1 .2 1.3 2.4 12.2 41.2 37.8 Bag

Arca Continental AC* MM OW 59.0 7,095 6 0.8 5.6 -0.2 -6.4 31.8 13.3 1 2.3 7.2 6.2 na na 4.2 4.8 28.7 8.6 21.6 22.9 AlanisASUR ASURB MM N 74.1 1,660 1 1.3 3 .6 6 .8 7.2 5 .9 15.1 13.8 8.9 8.2 1.3 1.0 5.0 5.4 15.4 9.2 9.7 10.3 AbdallaAxtel SA de CV AXTELCPO MM UW 5.0 459 1 0.8 0.4 -6.9 -23.2 -30.2 n m nm 4.5 4.2 0.0 0.0 0.0 0.0 nm nm -6.1 -6.9 BagCemex S.A. CX US OW 2.9 3,016 81 -1.7 0.0 -40.3 -63.8 -71.8 nm nm 1.9 1.7 0.2 0.2 0.0 0.0 nm nm -0.1 -0.1 Huerta,Co ca-Cola Femsa SA KOF US N 92.1 17,010 6 -1.5 2.3 0 .9 -0.8 11.8 18.2 1 5.2 8.8 7.2 0.0 0.0 2 .1 2.5 21.1 19.7 13.3 14.7 AlanisComerci COMERUBC MM UW 18.8 1,522 1 -0.1 3.3 -1.4 -5.1 24.1 n m na 5.3 na 10.1 8.2 0.8 na 24.0 na 9.7 na TeixeirCo mpartamos COMPARC* MM N 19.7 2,381 4 0.3 3.6 11.1 -8.0 -2 6.5 14.9 1 2.6 - - 4.5 3.5 1 .5 1.7 17.3 18.1 34.5 31.5 de MConsorcio Ara ARA* MM UW 4.1 398 1 2.2 5.4 -7.4 -28.6 -46.3 5.9 5.4 4.4 4.0 0.5 0.5 2.2 4.2 14.6 10.1 9.2 9.4 HuertCorporacion Geo GEOB MM N 16.8 688 4 1.1 1.1 -27.4 -34.6 -63.0 5 .4 4.7 4.1 3.7 1.0 0.8 0.0 0.0 12.1 13.7 18.0 18.7 HuertaFEMSA FMX US OW 66.3 23,731 46 -2.9 1.6 3.2 -1.5 18.6 16.5 13.7 8.6 6.9 na na 1.6 2.5 31.0 20.7 10.4 11.2 Alanis,First Cash Financial FCFS US OW 43.3 1,335 20 0.4 5.7 -10.5 1.6 39.7 1 9.4 16.0 10.8 9.1 3.7 3.0 0 .0 0.0 35.0 20.9 19.6 19.2 LaidleGAP GAPB MM N 45.8 1,919 3 0.1 3 .1 -3.2 -3.0 -9.0 22.3 20.5 10.0 9.3 2.6 2.3 3.6 3.9 -23.1 8.5 4.4 4.7 AbdallaGrupo Bimbo BIMBOA MM N 27.2 9,555 5 -2.6 3.5 1 3.0 -2.3 3.2 20.8 1 4.9 1 0.2 7.8 0.5 0.4 2.0 0.8 14.1 39.8 12.2 15.0 AlanG rupo Fin anci ero Ban orte GFNORTEO MM O W 4 1.9 7, 28 4 21 -0.7 5.8 -5.0 -2 3.3 -2 8.8 11.0 9.1 - - 1.4 1.2 2 .2 1 .7 14.5 2 1. 6 1 4. 2 14 .6 MaG rupo Finan ciero In bur sa G FINBURO MM UW 2 4.6 1 2, 23 0 8 3.4 6.7 -4.0 -1 7.3 -9 .5 2 2.1 1 8.5 - - 2.3 2.1 2 .1 1 .8 -4 .6 1 9. 3 1 0. 6 11 .8 MaG rupo Mexi co GMEXICOB MM N 3 3.2 1 9, 31 0 42 0.7 7.4 -14.9 -1 8.6 -3 4.4 7.3 5.9 3.8 3.1 16 .2 1 6.8 6 .7 7 .0 61.1 2 2. 6 3 4. 7 34 .1 AnGrupo Modelo GMODELOC MM OW 79.7 19,249 7 0.5 0.5 12.8 9 .3 4.2 23.7 20.8 9.6 8.7 34.8 3 1.3 2 .8 3.3 9.1 13.8 13.4 14.5 AlanGrupo Televisa SA TV US N 20.2 11,803 38 1.9 3.8 6 .9 -10.4 -2 2.1 21.9 2 0.2 2.1 1.8 0.2 0.2 0 .7 0.9 -10.5 8.8 16.1 15.6 BaggiHOMEX HOMEX* MM N 30.1 755 2 1.2 1.9 -22.2 -33.7 -57.0 5.7 4.9 4.3 3.6 0.8 0.7 0.0 0.0 15.6 15.4 14.5 14.5 HuerICA ICA* MM OW 15.5 744 5 0.2 4.4 -9.9 -39.8 -51.0 10.4 11.6 7.1 7.1 0.5 0.5 0.0 0.0 38.0 -9.7 4.9 4.2 HuertaMegacable MEGACPO MM N 27.0 1,733 0 0.0 0.0 8.3 - 0.1 -15.5 12.8 12.6 6.5 5.9 2.8 2.1 0.0 0.0 -2.1 2.2 13.7 12.3 BaggiOMA OMAB MM UW 23.6 702 0 1.1 2.4 4 .9 -9.4 -0.5 19.1 16.4 10.8 9.4 0.0 0.0 4.0 4.3 - 10.8 16.7 8.5 9.6 AbdalO rganizacio n Soriana SORIANAB MM UW 2 8.0 3, 76 8 1 0.2 -0.2 4 .5 -14.9 -2 9.3 13 .6 1 2.7 7.1 6.5 8.7 8.4 0 .5 0 .6 13.1 7 .1 1 0. 2 9.9 TeixSilver Wheaton SLW US O W 3 1.7 11, 19 6 3 05 1.8 15.4 -19.4 -1 3.6 -1 8.8 16 .7 1 2.8 1 4.0 10 .0 4.0 3.0 0 .4 0 .4 1 56 .7 3 0. 4 2 3. 7 23 .9 Brid gTelmex SA TMX US UW 15.6 14,074 25 -1.1 4 .8 - 4.3 -2.1 -3.2 13.0 14.5 1.6 1.7 0.4 0.4 5.2 5.7 -5.8 -8.4 36.2 38.8 BaggiUrbi URBI* MM OW 17.8 1,300 3 1.4 1.9 -20.0 -24.9 -38.5 8.0 6.5 4.6 4.0 1.0 0.9 0.0 0.0 16.0 23.8 13.3 14.3 HuertaWal -Mart de Mexico WALMEXV MM OW 32.7 43,433 42 -0 .2 -0.2 7 .3 -3.3 -7.2 24 .6 20.5 14.4 12 .1 11.4 10 .0 1 .2 1 .2 20.4 19.9 18.8 19.6 TMexico 306,433 849 16.2 13.9 6.4 5.4 5.5 5.0 2.0 2.2 18.6 15.8 24.7 24.2Source: J.P. Morgan Estimates, Bloomberg and Company Reports Updated as of 11 Oct 2011

% Price Change P/E EV/EBITDA P/BV Dividend YieldEPS Growth (%) ROE (%)


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12



Mexico Market: Technical Indicators

Source: MSCI, IBES, Datastream, CEIC, Bloomberg, EPFR GlobalNote: Mexbol absolute and relative to MSCI EM is rebased to 100 since Jan 03.# Our Earnings Yield Gap model is defined as BY/EY. For Bond yield we take mexico 1 year cetes rates. Updated as of 11 Oct 20

Mexico Fwd PEMexico fair value range*

Mexico Trailing PE Mexico Earnings GrowthMexico ROE vs Price to Book Value

(23730)

(19009)

(21558)

(25999)

(31741)

(29908)

(35165)

(42554)

15000 20000 25000 30000 35000 40000 45000

FWD PER

PER

PBR

DY

Mexico Performance

7

9

11

13

15

17

93 95 96 97 98 99 00 01 02 03 04 05 06 08 09 10 1

+1SD

-1SD

Avg

9

12

15

18

21

24

9 3 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 06 08 09 10 11

+1SD

-1SD

Avg

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

5

10

15

20

25

93 95 96 97 98 99 00 01 02 03 04 05 06 08 09 10 11ROE Pric e to Book

0

50

100

150200

250

300

50

150

250

350450

550

650

9 4 9 6 9 7 9 8 9 9 0 0 0 1 0 2 03 04 0 5 0 6 0 7 0 9 1 0 11

Absolute relative to EM

0.0%2.0%

4.0%

6.0%8.0%

10.0%12.0%

14.0%

0

300

600

900

1200

1500

93 95 96 97 98 99 00 01 02 03 04 05 06 08 09 10 11Emb ig S pr ead Ear ning s Yie ld

Mexico Embig Spread vs Earnings Yield Moving Averages

-10.0-5.00.05.0

10.015.020.025.030.035.040.0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Mexico Yield Gap TREND in YG

Equities Cheap

Equities Expensive

De-Rating

Re-Rating

Mexico Yield Gap Model#

2000

3000

4000

5000

6000

7000

Jan 07 Sep 07 Jun 08 Mar 09 Dec 09 Sep 10 Jun 11

200 day 50 day Mexico 30 day

40

60

80

100

120

140

160

Feb-10 J un-10 Oc t-10 Feb-11 J un-11 Oc

2011

2012


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13



Consensus EPS Revisions: Changes in 2011 and 2012 Forecasts

Updated as of Source: I/B/E/SNotes: The dashboard aims to show changes in earnings expectations. All year ends are for December .Charts have been rebased to 100 in Feb 2010

Oct 2011

AMX CemexBanorte

NIHD

Telmex

Coca Cola Femsa

Grupo MexicoFemsa

Urbi

Homex

Televisa Walmex

80.0

85.0

90.0

95.0100.0

105.0

110.0

115.0

Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11

2012

2011

70.0

80.0

90.0

100.0

110.0

120.0

130.0


2012

2011

0.020.040.060.080.0

100.0120.0

140.0160.0180.0200.0


2012

2011

90.095.0

100.0105.0110.0115.0

120.0125.0130.0


2012

2011

90.0

100.0

110.0

120.0

130.0


2012

2011

80.0

95.0

110.0

125.0

140.0

155.0

170.0

185.0


2012

2011

60.065.070.075.080.085.090.095.0

100.0105.0


2012

2011

80.0

85.0

90.0

95.0

100.0

105.0

110.0


2012

2011

75.0

80.0

85.0

90.0

95.0

100.0

105.0


2012

2011

80.0

85.0

90.0

95.0

100.0

105.0

110.0

115.0


2012

2011

80.0

90.0

100.0

110.0

120.0

130.0


2012

2011

75.0

85.0

95.0

105.0

115.0

125.0

135.0

145.0


2012

2011


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14



Value: Forward PE for Stocks

Updated as of Source: I/B/E/S, DatastreamNote: This Dashboard aims to show historic consensus f orward PE with +/- 1 SD bands

Oct 2011

AMX Cemex Coca Cola Femsa

NIHD

Telmex

Banorte

Grupo MexicoFemsa

Urbi

Homex

Televisa Walmex

0

10

20

30

40

50

01 02 03 04 06 07 08 09 11

+1SD

-1SD0

3

6

912

15

18

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

+1SD

-1SD0

369

1215

18

2124

99 00 01 02 03 03 04 05 06 07 08 08 09 10 11

+1SD

-1SD5

10

15

20

25

30

35

40

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

+1SD

-1SD

6

9

12

15

18

21

98 99 00 01 01 02 03 04 05 06 06 07 08 09 10 11

+1SD

-1SD

0

4

8

12

16

20

24

28

32

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

+1SD

-1SD 3

6

9

12

15

18

21

05 05 06 07 08 08 09 10 11

+1SD

-1SD

0

3

6

9

12

15

18

21

04 05 06 06 07 08 09 09 10 11

+1SD

-1SD

4

8

12

16

20

24

28

32

0 3 0 3 0 4 0 5 06 06 07 0 8 0 9 0 9 1 0 11

+1SD

-1SD

3

6

9

12

15

18

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

+1SD

-1SD

5101520253035404550

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

+1SD

-1SD12

15

18

21

24

27

30

33

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

+1SD

-1SD


15/29


16/29


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17



Key Economic Data

Updated as of Source: J.P. Morgan Economics, Bloomberg, Datastream, INEGI, Banxico. Red line Refers to forecasted numbers

Oct 2011

Real GDP (%oya) PMI (%oya) Imports Breakdown

Real Wage Growth (%oya)

Producer Confidence (%oya)

IP (%oya)

Unemployment RateExports Breakdown

Mexican Peso (MXN)

Consumer Confidence (%oya)

CPI (%oya) PPI (%oya)

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

04 06 07 08 10 11 1

J.P. Morgan

Consensus

J.P. Morgan forecast:end Dec 11: 12.40end Mar 12: 12.25end Jun12: 12.50

-12%

-9%

-6%

-3%

0%3%

6%

9%

12%

90 93 97 01 05 08 12

0%5%

10%15%20%25%30%35%40%45%50%55%

90 93 97 01 05 08 12

-15%

-10%

-5%

0%5%

10%

15%

90 93 97 01 05 08 12

0%

10%

20%

30%

40%

50%

60%

90 91 93 94 96 97 99 00 02 03 05 06 08 09 11

0%1%2%3%4%5%6%7%8%9%

90 91 93 94 96 97 99 00 02 03 05 06 08 09 11

-30%

-20%

-10%

0%

10%

20%

30%

40%

05 0 5 0 6 0 7 0 7 08 09 0 9 1 0 11 11

-25%-20%-15%-10%-5%0%5%

10%15%20%

02 03 03 04 05 06 06 07 08 09 09 10 11

-5%-4%-3%-2%-1%0%1%2%3%4%5%

05 05 06 07 07 08 09 09 10 11 11

-60%

-30%

0%

30%

60%

90%

120%

90 91 93 94 96 97 99 00 02 03 05 06 08 09 1

C ap it al I nt er me di at eConsumer

-80%

-40%

0%

40%

80%

120%

160%

200%

90 91 93 94 96 97 99 00 02 03 05 06 08 09 11

Oil Non Oil Agriculture

-25.0%-20.0%-15.0%-10.0%

-5.0%0.0%5.0%

10.0%15.0%20.0%

90 91 93 94 96 97 99 00 02 03 05 06 08 09


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19



Financial Sector

Updated as of Source: J.P. Morgan, Bloomberg, Datastream, Banxico, INEGI

Oct 2011

Cetes Rates M1 Money Supply (%oya) M3 Money Supply (%oya)

Delinquency Rates (%oya)

Cost of Deposit (%oya)

Change in Monetary Base (%oya)

Deposit Growth (%oya)Real Credit Growth (%oya)

Total Deposits of Comercial Banking, Mxp bn

Total Loan Growth (%oya)CD Rates

0

10

2030

4050

60

70

80

93 94 96 97 99 00 02 03 05 06 08 09 11

91 Days Cetes Rates

28 days cetes Rates

0%

10%

20%

30%

40%

50%

60%

90 91 92 93 95 96 97 98 00 01 02 03 05 06 07 08 10 11-40%-20%

0%20%40%60%80%

100%120%140%160%

90 91 93 94 96 97 99 00 02 03 05 06 08 09 110%

10%

20%

30%

40%

50%

60%

90 91 93 94 96 97 99 00 02 03 05 06 08 09 11

-25%

-15%

-5%

5%

15%

25%

35%

45%

98 98 99 00 01 02 03 03 04 05 06 07 08 08 09 10 11-25%

-15%

-5%

5%

15%

25%

35%

01 02 03 03 04 05 05 06 07 07 08 09 09 10 11

S ho rt t er m L on g Ter m

Total

0%

10%

20%

30%

40%

50%

94 96 97 98 99 00 01 02 03 04 05 06 07 09 10 11

Consumer

Housing

Corporate

Loan Growth Composition (%oya)

0

10

20

30

40

50

60

70

80

90 91 93 94 96 97 99 01 02 04 05 07 09 100

10

20

30

40

50

60

90 91 92 93 94 95 97 98 99 00 01 02 04 05 06 07 08 09 11-40%

-20%

0%

20%

40%

60%

969697989900010102030405060607080910 11-60%-40%-20%

0%20%40%60%80%

100%120%

96 97 98 99 00 01 02 03 04 05 06 07 09 10 11

C on su me r H ou si ng

Corporate

0.15

0.16

0.17

0.18

0.19

0.20

2 0

0 0

2 0

0 1

2 0

0 2

2 0

0 3

2 0

0 4

2 0

0 5

2 0

0 6

2 0

0 7

2 0

0 8

2 0

0 9

2 0

1 0


20/29

20



Consumer and Telecom Sector

Source: J.P. Morgan,Bloomberg, Antad, INEGI, COFETEL,Sociedad Hipotecaria FederalOct 2011Updated as of

Retail Sales Index (%oya) Car Sales (%oya) Motor Vehicle Production (%oya)

Total Mortgages in 2009 (Bn)

Mortgage loans by banks (Ps bn)

Antad Sales (%oya)

Workers Remittances USD MM (%oya)General Economic Activity Index (%oya)

Productivity Index (%oya)

Fixed Lines Growth (%oya)Mobile Subscriber Growth (%oya)

-10%

-5%

0%

5%

10%

15%

01 01 02 03 04 04 05 06 07 07 08 09 10 10 11-12%-9%-6%-3%0%3%6%9%

12%15%

Jan 06 Dec 06 Nov 07 Oct 08 Sep 09 Aug 10 Jul 11

Al l S to re s S up er mark et s

-100%-75%-50%-25%

0%25%50%

75%100%125%

89 90 92 94 96 98 00 01 03 05 07 09 11-75%

-50%

-25%0%

25%50%

75%100%

125%

94 95 96 98 99 01 02 03 05 06 08 09

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

94 95 96 97 99 00 01 02 04 05 06 07 09 10 11

Ter tiar y Secondary IGAE

-40%

-20%

0%

20%

40%

60%

80%

96 97 98 99 00 01 02 03 04 05 06 07 09 10 11

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

94 95 96 97 99 00 01 02 04 05 06 07 09 10

Cable TV and Satellite TV Growth (%oy

-20%

0%

20%

40%

60%

80%

100%

120%

00 01 03 04 06 07 09 10

S at el li te C ab le T V

0%

20%

40%

60%

80%

100%

120%

140%

160%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

M in ut es U se rs

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

95 97 98 99 00 01 02 03 04 05 06 07 08 10 11

447

100143

48 46

0

75150225

300375

450525

Infonavit Fovissste Banks /

Sofoles

Others SHF

124151

127152

175201

0

50

100

150

200

250

2007 2008 2009 2010e 2011e 2012e


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Others

Source: J.P. Morgan, PEMEX, INEGI. The Blue line shows the Production numbers and Brown Line Growth (%oy a)

Oct2011Updated as of

Crude Production Cement Production Index

Passenger Travel Growth (%oya)

Natural Gas Production Cement Price Index

Gasoline Price (MXP/LTS)

-30%

-20%

-10%

0%10%

20%

30%40%

50%

1700

2000

2300

2600

2900

3200

3500

3800

9697989901 020304060708 0911

G r o w t h ( % o y a )

P r o d u c t i o n ( 0 0 0 b b l ' s )

Production % oya

-40%

-30%

-20%

-10%

0%

10%

20%

30%

50

70

90

110

130

150

06 06 07 07 08 08 09 09 10 10

G r o w t h ( % o y a )

P r o d u c t i o n I n d e x

Pr oduc tion Index % oya

12345

6789

10

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11-60.0%

-20.0%

20.0%

60.0%

100.0%

Jan 07 Jan 08 Jan 09 Jan 10 Jan 11

International Domestic

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

7580859095

100105110115

120125

06 06 07 07 08 08 09 09 10 10

G r o w t h ( % o y a )

P r i c e I n d e x

Cement Index % oya

-10%

-5%

0%

5%

10%

15%20%

25%

30%

3000

4000

5000

6000

7000

8000

969798990102 03040607080911

G r o w t h ( % o y a )

P r o d u c t i o n ( 0 0 0 b b l ' s )

Production % oya


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Fund Flows

Pension Fund Flows- August 2011 Survey of key EM managers positioning relative to MSCI EM For major EMs

MXN (bn) Exposure1 Country > 2% OW < 2% UW OW-UW < 0.1% EM % JPM reco

% bnIndia 14 (14) 9 (10) 5 (4) 1 (1) 6.9 N

Total investments 1531 100.0 2.0 29.4 Russia 16 (21) 12 (12) 4 (9) 3 (3) 6.9 UW

Government Securities 891 58.2 0.2 1.5 Brazil 13 (13) 9 (10) 4 (3) 0 (0) 15.4 OW

Bonds (Government bonos) 75 4.9 -1.4 -1.1 China+HK 19 (15) 15 (16) 4 (-1) 0 (0) 17.3 UW

Cetes (Treasury bills) 315 20.6 1.2 3.6 Indonesia 9 (11) 6 (8) 3 (3) 4 (6) 2.8 OW

Inflation-indexed bonds 118 7.7 1.2 1.4 Mexico 5 (4) 13 (12) -8 (-8) 5 (5) 4.7 UW

Non-government securities 349 22.8 0.8 2.7 China 13 (9) 21 (24) -8 (-15) 0 (0) 17.3 UW

Total equities 288 18.8 8.3 22.1 South Africa 6 (5) 21 (16) -15 (-11) 1 (1) 7.8 N

Mexico equities 127 8.3 -2.1 -2.7 Malaysia 1 (0) 17 (14) -16 (-14) 11 (11) 3.2 OW

International equities 161 10.5 18.3 24.9 Korea 5 (5) 25 (28) -20 (-23) 1 (1) 14.4 N

Taiwan 2 (2) 38 (39) -36 (-37) 0 (0) 10.9 N

1 .Percentage of total net assets under management p lus accountable commissions; used to se the investment reg ime limi ts Source: EPFR Global, MSCI, J .P. Morgan calculat ions

Source: CONSAR

Mexico Mon thly Net Foreign Inves tment into Mexican Stock Market Mutua l Fund AUM and% share of Equi ty

Source: MSCI, Datastream, EPFR Global Source: Asociacion Mexicana de Intermediarios Bursatiles

chg m/m

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

(1,400)

(1,050)

(700)

(350)

0

350

700

00 01 02 03 04 05 07 08 09 10 11

Foreigners' Net Buy (L) MSCI Mexico (R)

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

20000

40000

60000

80000

100000

120000140000

J an 07 May 0 7 Sep 07 Jan 08 Ma y 08 Sep 08 Jan 09 Ma y 09 Sep 0 9 Ja n 10 AUM (bi ll io ns pe so s) % s ha re in e qu it y


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23




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Companies Recommended in This Report (all prices in this report as of market close on 12 October 2011)Banorte (GFNORTEO.MX/Ps43.74/Overweight), Cemex (CX/$3.44/Overweight), First Cash Financial(FCFS/$44.16/Overweight), Wal-Mart de Mexico (WALMEXV.MX/Ps32.74/Overweight)Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Market Maker: JPMS makes a market in the stock of First Cash Financial. Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Cemex within

the past 12 months.

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Banorte. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Wal-Mart de Mexico,

Banorte, First Cash Financial, Cemex.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Banorte, Cemex.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the followingcompany(ies) as clients, and the services provided were non-investment-banking, securities-related: Wal-Mart de Mexico, First CashFinancial, Cemex.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,and the services provided were non-securities-related: First Cash Financial, Cemex.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Banorte,Cemex.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intend to seek, compensation for investment bankingservices in the next three months from Banorte, Cemex. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services

other than investment banking from Wal-Mart de Mexico, First Cash Financial, Cemex.

MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used tocreate any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling theinformation hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular

purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or anythird party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI,Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.


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Date Rating Share Price(Ps)

Price Target(Ps)

25-Apr-07 N 22.40 --

24-Nov-07 N 19.26 24.00

13-Jun-08 N 21.55 25.00

13-Oct-08 OW 16.87 21.05

13-Nov-08 OW 15.34 21.00

12-Feb-09 OW 14.63 17.50

05-May-09 N 19.97 21.50

09-Oct-09 N 23.68 28.00

02-Mar-10 N 32.50 35.50

10-Nov-10 OW 33.95 40.00

Date Rating Share Price(Ps)

Price Target(Ps)

25-Oct-06 OW 39.20 43.00

23-Jan-07 OW 43.96 47.00

03-Apr-07 OW 51.00 61.00

19-Nov-07 OW 48.66 67.00

23-Jul-08 OW 44.01 65.00

23-Oct-08 OW 21.33 33.00

27-Jan-09 OW 18.67 28.00

18-Mar-09 OW 18.96 25.0006-Apr-09 N 21.06 24.00

21-Jul-09 UW 36.45 38.00

27-Oct-09 N 42.40 49.00

21-Apr-10 UW 55.73 54.00

19-Jul-10 N 49.81 62.00

26-Jul-11 N 51.11 63.00

10-Aug-11 OW 42.69 57.00

0

12

24

36

48

60

Price(Ps)

Apr

07

Jan

08

Oct

08

Jul

09

Apr

10

Jan

11

Oct

11

Wal-Mart de Mexico (WALMEXV.MX) Price Chart

OW Ps17.5

OW Ps21

N N Ps24 N Ps25OW Ps21.05 N Ps21.5 N Ps28 N Ps35.5 OW Ps40

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.Break in coverage Apr 25, 2007 - Nov 24, 2007.

0

19

38

57

76

95

Price(Ps)

Oct06

Jul07

Apr 08

Jan09

Oct09

Jul10

Apr 11

Banorte (GFNORTEO.MX) Pr ice Chart

OW Ps61 OW Ps28

OW Ps47 OW Ps33 N Ps24 N Ps49 N Ps62 OW Ps57

W Ps43 OW Ps67 OW Ps65 OW Ps25 UW Ps38 UW Ps54 N Ps63

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.Initiated coverage Oct 25, 2006.


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Date Rating Share Price($)

Price Target($)

04-Dec-09 OW 21.24 26.50

21-Apr-10 OW 23.52 28.50

20-Oct-10 OW 29.90 34.50

26-Jan-11 OW 33.50 36.00

14-Mar-11 OW 32.90 41.00

20-Jul-11 OW 43.97 46.00

Date Rating Share Price($)

Price Target($)

05-Jul-04 OW 16.42 -

12-Sep-04 OW 16.36 18.10

16-Sep-04 OW 16.89 18.20

03-Mar-05 OW 22.14 24.00

26-Apr-05 OW 19.91 23.00

06-May-05 OW 20.35 24.00

01-Aug-05 OW 24.63 26.00

09-Sep-05 OW 27.00 27.50

15-Nov-05 OW 28.63 32.5006-Jan-06 OW 32.19 32.00

16-Jan-06 OW 32.89 36.00

09-Aug-07 OW 34.96 43.00

17-Sep-07 OW 34.96 42.00

17-Dec-07 OW 34.96 38.00

10-Mar-08 OW 34.96 40.00

28-May-08 N 34.96 39.00

23-Jul-08 N 34.96 38.00

27-Aug-08 N 34.96 37.00

10-Sep-08 OW 34.96 30.00

16-Dec-08 OW 34.96 28.00

09-Jan-09 OW 34.96 27.00

30-Jan-09 OW 34.96 24.00

22-Apr-09 OW 34.96 21.0019-Jun-09 OW 34.96 19.00

16-Jul-09 OW 34.96 17.00

05-Oct-09 OW 34.96 16.00

23-Jul-10 OW 9.82 14.00

01-Sep-10 OW 8.13 12.00

06-Oct-11 OW 2.92 5.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period.J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight

0

17

34

51

68

85

Price($)

Nov

06

Aug

07

May

08

Feb

09

Nov

09

Aug

10

May

11

First Cash Financial (FCFS) Price Chart

OW $41

OW $36

OW $26.5OW $28.5 OW $34.5 OW $46

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.Initiated coverage Dec 04, 2009.

0

15

30

45

60

Price($)

Nov03

May05

Nov06

May08

Nov09

May11

Cemex (CX) Price Chart

OW $18.2 OW $24OW $32.5 OW $38 N $38 OW $28OW $21OW $16

OW $18.1 OW $23OW $27.5OW $36 OW $42 N $39OW $30OW $24OW $17 OW $12

OW OW $24OW $26OW $32 OW $43 OW $40N $37OW $27OW $19 OW $14 OW $

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Jul 05, 2004.


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Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months,we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverageuniverse.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocksin the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, eachstocks expected total return is compared to the expected total return of a benchmark country market index, not to those analystscoverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can

be found on J.P. Morgans research website, www.morganmarkets.com.

Coverage Universe: Laidler, Ben : First Cash Financial (FCFS)

J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2011Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 47% 42% 11%IB clients* 51% 44% 33%

JPMS Equity Research Coverage 45% 47% 7%

IB clients* 70% 60% 52%*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analystor your J.P. Morgan representative, or email [email protected] .

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation basedupon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues,which include revenues from, among other business units, Institutional Equities and Investment Banking.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-USaffiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, publicappearances, and trading securities held by a research analyst account.

Other DisclosuresJ.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketingname for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

Options related research: If the information contained herein regards options related research, such information is available only to persons who havereceived the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,

please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf

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http://www.morganmarkets.com/http://www.morganmarkets.com/http://www.morganmarkets.com/mailto:[email protected]:[email protected]:[email protected]://www.optionsclearing.com/publications/risks/riskstoc.pdfhttp://www.optionsclearing.com/publications/risks/riskstoc.pdfhttp://www.morganmarkets.com/mailto:[email protected]://www.optionsclearing.com/publications/risks/riskstoc.pdf


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