This commentary was posted recently by fund managers, research firms and market newsletter writers and was edited by Barron’s.
April 16: The Mexican economy has been hit by a perfect storm in recent years. But the stars are now starting to align.
The headwinds of the country’s growth – sluggish productivity, lack of investment, tight fiscal and monetary policies and manufacturing competition from China – are turning into tailwinds.
First, stagnant productivity growth in Mexico will be rekindled by an acceleration in foreign direct investment inflows, especially from multinational companies rushing to position themselves to take advantage of the US economic boom. Mexico’s manufacturing sector will also benefit from the American industrial renaissance and efforts to relocate away from China. from Mexico maquiladora the industry is expected to benefit from these trends due to its trading relationship and geographic proximity to the United States, and lower wages than China.
Second, restrictive fiscal and monetary policies are being reversed. The central bank has reduced the policy rate by 425 basis points since the end of 2019 and interest rates will continue to fall, as there are no real inflationary pressures. In addition, fiscal policy will be more relaxed than in the past two years, and at 40% of gross domestic product, the public debt burden is not a concern.
We therefore expect Mexican financial markets to outperform their emerging market counterparts. BCA Research’s emerging markets strategy recommends accumulating Mexican financial assets in the event of a downturn.
“Remarkable growth context”
Economic and financial analysis
April 15: US retail sales were even better than expected in March, increasing 9.8% month-on-month versus 5.8% expected by consensus, leaving the annual growth rate at 30, 4%. There is strength throughout the report, with each component showing a gain, ranging from 23.5% for sporting goods, 18.3% for clothing, 15.1% for motor vehicles and up. the “weak” performance of furniture (up 5.9%), healthcare and personal care (+ 5.7%) and food / beverages (+ 0.7%).
Excluding the more volatile components (automobiles, gasoline, foodservices, building materials), the so-called “control group”, which better fits the broader trends in consumer spending, grew 6.9% more modestly , but even this is a good result. This means we are well positioned for an annualized GDP growth figure of over 7% for the first quarter.
The $ 1,400 stimulus payment will keep retail sales momentum going for April, and with job creation continuing to improve – note the fantastic weekly jobless claims of 576,000 for April 10, versus 769,000 the week before – the fundamentals driving the economy look very strong. The ongoing easing of Covid containment measures will increase opportunities for job creation and spending in the economy, with second quarter GDP growth reaching double digits …
In this context of remarkable growth, it is increasingly difficult for us to believe that the Federal Reserve will wait until 2024 before raising interest rates. Our view of the house is currently for a move to the second quarter of 2023. But with inflation almost certainly reaching 4% in May and likely to stay above 3% for most of the next 12 months due to imbalances between l ‘supply and demand and a greater contribution of housing to the consumer price index, we see the risks increasingly tilted towards December 2022. rate hike.
Money flows into equity funds
The morning star
data for U.S.-domiciled mutual funds and exchange-traded funds shows organic growth at levels well above the trend of 7.4% for March and 6.7% for the first quarter (vs. averages of 1% to 2% in 2018-20). Total retail flows have been robust over the past five months, setting a new record high of $ 147 billion in February and another record high of $ 150 billion in March. In the first quarter, flows by type of vehicle were generally positive, including actively managed UCITS (3.1% versus 0.9% in the fourth quarter of 2020) and passive UCITS (4.1% versus 0.7 % in the fourth quarter) and the remainder particularly strong for ETFs (17.6% against 16.4% in the fourth quarter). Equity fund flows improved for every vehicle type in the first quarter, but were by far the strongest for equity ETFs (18.9% organic).
—Christopher Harris and his team
The geopolitics of semi-chips
April 13: The centrality of semiconductor chips to economic activity combines with competition from the US-Chinese superpowers to reshape the integrated circuit industry. The combination of the US offensive (Chinese sanctions) and defense (Washington-Silicon Valley alliance) lays the foundation for US and allied domination of advanced chip production.
Over the next three years, the winners in changing demand, supply chain and geopolitics are those countries with a physical IC and / or technical trade surplus. East Asia has both, while the United States, with its dominance of design tools and advanced manufacturing equipment inputs, owns the former. Taiwan and Korea are clear winners and will continue to benefit from very strong external demand and an increase in geo-economic power.
China is a country with a double semiconductor deficit, with insufficient domestic production and a dearth of advanced intellectual property. Beijing is investing heavily to fill the gap, and we expect big capacity expansion at the lower end of the tech spectrum. However, advanced production prowess will remain beyond China’s reach for the foreseeable future.
We have largely excluded Europe from the analysis, as the continent does not have a clear semiconductor strategy. The European Union has set itself ambitious goals and provided funding to domestic industry, but remains far behind Beijing and Washington in its political and financial commitment to the production of integrated circuits.
The inflation spike will be temporary
Waddell & Associates
April 11: At the end of last year, we called inflation a critical factor to watch in 2021 due to its impact on Federal Reserve policy and interest rates. Inflation has remained below the Fed’s 2% target. The February year-over-year personal consumption expenditure index, or PCE, decelerated to 1.4% (previously 1.5%). However, rising commodity prices, trade bottlenecks and projections for the fastest rate of economic growth in 60 years have raised fears of overheating. These inflationary fears are expected to intensify over the coming months as economic activity normalizes and prices normalize with it. Headline consumer price index, or CPI, inflation could reach 3.5% year-on-year in May, which would be the fastest pace in 10 years, while core PCE is expected to reach 2 , 3%, which would be the fastest rate in 13 years. But it would be premature to read too much in these inflationary readings. Over the next few months, we will likely see an adjustment in the price level over several months, which could look like an increase in inflation. However, in the second half of 2021, as the economy normalizes further, further growth in economic activity and prices will likely moderate and return the inflation rate to its trend.
– Timothy W. Ellis
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