Tags: BlackRock | Fink | Pimco | Mexico

BlackRock's Fink Is Captivated by Pimco Favorite: Mexico

Monday, 07 Oct 2013 01:18 PM

 

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For Laurence D. Fink, who oversees $3.86 trillion as BlackRock Inc.’s chief executive officer, there’s no better place to invest than Mexico.

“Mexico is at the beginning of a real revolution,” Fink said Oct. 3 at an event hosted by the University of California, Los Angeles, in Beverly Hills. “You’re going to have a tremendous opportunity.”

While American politicians are deadlocked in a budget standoff that has forced a partial U.S. government shutdown, Mexican President Enrique Pena Nieto has garnered support from the biggest opposition party for his proposal in August to end the state oil company’s 75-year monopoly. Fink said the plan would turn Mexico into one of the world’s biggest energy producers and unleash an investment boom — making the nation his favorite international destination to put money.

Fink’s bullishness on Mexico is echoed by overseas debt investors including Bill Gross’s Pacific Investment Management Co., the world’s biggest bond fund manager. Their purchases of Mexico’s peso-denominated debt soared 75 percent to $4 billion last month as foreign holdings reached a record. The notes returned 4.9 percent in dollars in the past month, exceeding the 4.18 percent average gain for emerging markets, while Mexico’s 10-year bond yields fell by the most in 15 months.

Fueling Interest

BlackRock’s Emerging Market Local Debt Fund has 9.9 percent of net assets in Mexican securities, more than any other country, according to a second-quarter fact sheet. Melissa Garville, a spokeswoman for BlackRock, declined to comment on the fund’s current holdings in Mexico.

The energy proposal is fueling investor interest in Mexico as the U.S. Federal Reserve maintains its unprecedented stimulus that’s propped up emerging-market assets with cheap money.

Bond market gains have also been supported by the Mexican central bank’s reduction of interest rates in September for the second time this year to propel the economy.

Concern earlier this year that the Fed might taper its bond-buying program triggered the biggest developing-nation rout in four years. Gross wrote in a monthly report in August that Mexico’s push for structural reforms will help the country “weather the storm.”

Pimco’s $250 billion Total Return Fund is the biggest holder of the country’s 2024 bonds, data compiled by Bloomberg show. Mexico also has the highest allocation among countries in Pimco’s $12.7 billion Emerging Local Bond Fund, at 17.1 percent, according to its August monthly report.

Less Debt

Gross, who was interviewed alongside Fink at the UCLA event last week, said Mexico has a lower debt burden than the U.S. and more competitive wages. Also, the peso may be undervalued when compared with the U.S. dollar or Brazilian real, he said, based on the prices of McDonald’s Corp. Big Mac hamburgers in the different countries.

The most-recent Economist Big Mac Index reading for Mexico is $2.86, compared with $4.56 in the U.S. and $5.28 in Brazil, according to data compiled by Bloomberg.

Pena Nieto’s energy bill aims to attract investment from companies such as Exxon Mobil Corp. and Chevron Corp. by changing Mexico’s constitution to give privately run companies the chance to pump oil in the country for the first time since 1938. The proposal is coupled with measures to reduce the government’s dependence on tax revenue from the state oil company, Petroleos Mexicanos.

Reform Approval

“It looks like it’s going to be approved,” Fink said. Pemex’s ability to spend on drilling projects was constrained because all of its profits were going to the federal government, he said.

BlackRock said in April it hired Gerardo Rodriguez, a former undersecretary of finance and public credit in Mexico, to help support its emerging-markets business and product- development strategy.

Mexico’s economic overhauls should pass by Dec. 15, Gabriel Lozano, an analyst at JPMorgan Chase & Co., wrote in an Oct. 4 report.

Claudio Robertson, the head of fixed-income trading at Investment Placement Group, which oversees about $500 million in emerging-market debt, said the energy proposal could get diluted in Congress.

“Markets have high expectations,” he said in an e-mailed response to questions. “There are several reforms and initiatives being discussed, and a lot of political capital is being spent to push them through. Having a very watered down reform is a real risk.”

Yield Spread

The extra yield investors demand to own Mexican government dollar bonds instead of Treasurys climbed two basis points, or 0.02 percentage point, to 209 basis points at 7:30 a.m. in New York, according to JPMorgan Chase & Co.’s EMBI Global Diversified index. The peso depreciated 0.4 percent to 13.14 per U.S. dollar.

Mexico’s economic growth may accelerate to 3.8 percent next year from an estimated 1.9 percent in 2013, based on the median estimate of 30 economists in a Bloomberg survey.

Pena Nieto’s energy proposal is “certainly a favorable turn of events,” Gross said.

© Copyright 2014 Bloomberg News. All rights reserved.

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