Jim O’Neill has been tracking economic reform initiatives in countries across the world during his 33-year career on Wall Street. Only a few of them, he said, rank higher than what Mexico achieved this year.
“I can’t think of many other countries that have had a period of such deep reforms,” said O’Neill, who coined the term BRICs while serving as a top Goldman Sachs Group Inc. economist in 2001, correctly predicting a surge in growth for Brazil, Russia, India and China. “Markets are only just really starting to give Mexico any credibility now that the energy reform is going through.”
President Enrique Pena Nieto shepherded through at least 10 constitutional amendments in his first year in office, including measures to open Mexico’s oil industry to private investment for the first time in 75 years. He is slated to enact as soon as this week the new drilling rules, which are aimed at luring oil majors from Exxon Mobil Corp. (XOM) to Chevron Corp. (CVX), after a majority of states ratified the changes adopted by the national congress.
O’Neill estimates the reforms will boost Mexico’s long-term economic growth to 5 percent from the current 3 percent, helping trigger a bond rally that will top gains in other emerging markets next year. Barclays Plc predicts the reforms will spark investor demand for bonds in coming weeks, with yields on longer-term securities falling about 0.25 percentage point by year-end.
Mexico was the only major Latin American economy whose local-currency bonds gained this year in dollar terms. They returned 1.6 percent, compared with an average 3.9 percent loss for emerging-market countries. Yields on Mexico’s benchmark peso bonds have risen 0.98 percentage point this year to 6.40 percent as speculation the Federal Reserve will curtail U.S. monetary stimulus eroded demand for developing-nation bonds.
Analysts forecast Mexico’s peso will strengthen 3.4 percent against the U.S. dollar by the end of 2014, boosting dollar-based gains on local fixed-income assets. The projected gain is the biggest among 33 currencies tracked in a Bloomberg survey of analysts.
Pena Nieto, 47, wasted little time pushing his agenda after taking office a year ago. On his second day on the job, he signed a pact with the two biggest opposition parties to pursue legislative proposals to spur economic growth.
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