Mexican peso: Current attractive valuations, robust fundamentals
The Mexican peso is currently one of our highest-conviction ideas within currencies. Relative to other currencies, the peso is cheap on a trade-weighted basis, while Mexico is benefiting from strong exports, especially to the United States, and increased central bank reserves.
We recognize the currency is volatile at present, as professional investors tend to use the peso as a hedge against less liquid emerging market investments, and this has led to it becoming overextended. However, Mexico's economy is still strong, and we believe the peso should recover. In the meantime, we favor investments that seek to take advantage of gains, but which, potentially, also offer an element of protection.
Mexico is enjoying solid fundamentals, including strong oil exports, which are supportive for the peso.
Central bank reserves are growing
Mexican central bank reserves in USD billions
Source: Bloomberg. As of June 29, 2012.
Strong oil exports are having a positive impact
Year-on-year change in MXN exports
Source: Bloomberg. As of December 31, 2011.
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Currency risks include, but are not limited to, currency exchange risk, interest rate risk, issue credit risk, currency devaluation risk, political and social uncertainties, and economic risk.
Investments in commodities carry greater volatility than investments in traditional securities. See "Important Information" at the end of this paper for a discussion of the risks involved with commodities.
The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument.
Past performance is not indicative of future results.