It's stop and go for Mexico
For several short, giddy years earlier this decade, Mexico held Wall Street in thrall. Led by the intense IR efforts of flagship Telmex, Mexico's issuers basked in a collective passion for all things emergent. DR issuance flourished, the bolsa climbed, media and analyst coverage took a quantum leap.
The tale of a misguided portfolio manager's desperation for information on a company known only by the name 'Grupo' is legendary within New York's IR consultant circles. As families and governments sold assets in a privatization boom, the investor relations challenge became a primary concern, but only now is its worth being truly proven.
Today, US institutional investors have mixed feelings about Mexican equities. Shocks such as the 1994-95 peso crisis, the ongoing 'Asian contagion' and a sharp drop in petroleum prices (oil-related revenue represents over 30 percent of public sector income here) have left investors more cautious about Mexican investments. Besides, why should US investors go overseas when their own market has soared 60 percent in the last three years? Meanwhile, questions of political legitimacy and stability linger in the run-up to presidential elections to be held in the year 2000.
The first quarter of 1998 saw more nervousness as the prospects for higher exchange and interest rates and lower export sales pointed to a much less attractive stock market. It all adds up to a hard march for those who must communicate individual Mexican messages throughout the world. Fortunately, investor relations skills have been sharpened over the years and the commitment to better communication has made Mexican IR a model for all emerging markets.
'The progress in terms of responsiveness and availability of information has been so dramatic that it is hard to overstate,' says George Santana, first vice president at Merrill Lynch, who began investigating Latin America in 1991 as a senior analyst. 'The changes have been of great help,' he adds.
A veteran of Latin American IR, Kay Breakstone of New York-based Ludgate Communications, compares the change in Mexican IR professionalism over the last decade as being like night and day. 'Mexico has entered a new era of sophistication,' says Breakstone. 'Their investor relations capabilities compete with US companies.' But while IR skills may be up to the task, Mexican-based practitioners face a serious handicap. They attract a far smaller universe of investors than their US competitors. Pegged in Latin or emerging markets portfolios (and, rarely, in international funds), some Mexican companies are working toward expanding their vision beyond a relatively narrow group of investors.
Riding investment waves
Several waves of international investment have washed over Mexico in recent times. In the 1980s, Mexico attracted only a select group of investors. Then emerging markets funds appeared in strength. Their success drew in other sorts of investors eager for a piece of the action. US domestic funds left room in prospectuses for a small percentage of foreign investment 'should conditions warrant'. The conditions seemed right in Mexico until the peso crisis. Those fund managers not prepared for the volatility that ensued, stampeded back across the Rio Grande and left the dedicated managers to ride the bouncing bolsa. Once again, however, the Mexican allure is tempting fund managers to reexamine their asset allocations.
According to Peregrine Winfield, a cement and construction analyst at BBV LatInvest Securities, there will come a time when international investors will focus on the share value in Latin America. 'As asset prices rise in both Europe and the US, savvy investors will start looking at casting their nets wider,' says Winfield. 'Investor friendly companies are the obvious ones to become of interest to international fund flow.'
While access to current financials is crucial, corporate governance issues influence analysts like Winfield. He wants to see more linkage between stock performance and management compensation. 'Nothing focuses management's attention on getting the stock price to what it should be better than that kind of incentive,' comments Winfield.
For now, with share prices volatile, and uncertain economic growth ahead, a backlog of money-raising depositary receipt issuers are waiting in the wings. Companies like airline holding company Cintra and broadcaster Televisa are thought to be holding out for the right moment to approach US markets.
'The secondary market is active,' notes Ken Lopian of Bank of New York's depositary receipts division. 'But those planning to raise money will do so later in the year when the market may have picked up.'
With international capital fickle, the government hopes the national pension system reform that started last year will strengthen domestic savings. While the private pensions aren't yet allowed to buy equities, Mexican firms are increasingly tapping other sources of local funding. Last year, Industrias Bachoco sold almost half of a $127 mn deal to local retail investors. While only $100 mn was earmarked specifically for domestic investors in the $600 mn equity offering for media company Azteca, demand from local banks and the retail investment community reached $500 mn.
Today, Mexican investor relations professionals are working to maintain their credibility in all markets as they lay the groundwork for the next investment wave. Mexico's past performance is a matter of record, but, as always, future potential is a function of investor perception.