Worst Earnings in Three Years Fail to Deter Mexico Investors

  • Nation's IPC Index gains amid earnings that disappoint
  • Retail sales increased by the most since 2012 in June

Mexico’s worst earnings in 13 quarters aren’t deterring investors betting that rising sales are a precursor to economic growth next year.

The IPC Index has climbed 6.2 percent in the last month through Wednesday, the second-best performance among the benchmark gauges in six Latin American markets. That’s because shareholders are focusing on the bigger picture: a resurgence in the domestic economy, Grupo Financiero Santander Mexico SAB and Bank of America Corp. say.

Average sales for Mexico’s companies currently on the IPC rose to the second-highest level since 2012 in the third quarter, according to data compiled by Bloomberg. Mexican consumers are spending more as wages rise and inflation drops to record lows because of new laws that reduced phone and TV service prices.

“The most dynamic part of the economy is domestic consumption,” said Arturo Espinosa, a Mexico City-based strategist for Santander. “The latest results from the companies show the Mexican economy is recovering more quickly than expected.”

The IPC index fell 0.4 percent in Mexico City on Thursday.

Pinfra, Alsea

The sales gains were paced by toll-road operator Promotora y Operadora de Infraestructura SAB, which posted revenue growth of 68 percent, and restaurant operator Alsea SAB, which had a 44 percent increase. Shares of Pinfra have gained 14 percent in the last month, while Alsea surged 7.2 percent.

While sales were in line with what analysts anticipated, net income for the 35 companies on the IPC missed estimates by 22 percent as billionaire Carlos Slim’s America Movil SAB and builder Empresas ICA SAB led losses. The average profit for IPC members was 1.1 billion pesos ($66.5 million), the lowest since the second quarter of 2012, according to data compiled by Bloomberg. A weaker peso weighed on results.

Investors “have an expectation that sales are going to keep increasing at current rates or higher,” Carlos Capistran, chief Mexico economist at Bank of America, said in an e-mail. “The economy is recovering. Consumption is doing very well after two slow years.”

Retail sales jumped by the most since 2012 in June, according to government data.

Economic Forecast

Economic growth will accelerate to 2.8 percent in 2016 from 2.3 percent this year, according to analysts in a Bloomberg survey.

Not everyone agrees: Mexico’s economy won’t likely improve next year as government spending and U.S. growth weakens, according to Monex Casa de Bolsa.

“What’s happening is there’s the belief that going forward the situation will improve,” said Monex analyst Fernando Bolanos. “This is a mistake.” Bolanos sees Mexico’s economy growing 2.1 percent next year after rising 1.9 percent in 2015.

For now, results are positive, according to Santander’s Espinosa, who wrote in a report that third-quarter revenue grew by the most in three years for Mexico’s 50 largest companies, excluding America Movil.

For equity investors, that’s enough to stay in Mexico.

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