Bankers Get Hand With Collateral in Boost to Debt
Comment of the Day

November 29 2013

Commentary by Eoin Treacy

Bankers Get Hand With Collateral in Boost to Debt

This article by Eric Martin for Bloomberg may be of interest to subscribers. Here is a section:

Pena Nieto, who took office a year ago, has negotiated with opposition parties to pass laws to spur competition in telecommunications, make teachers more accountable for performance and raise taxes to reduce the country's dependence on oil revenue.

The changes, including those from the energy bill Pena Nieto sent to Congress, may boost economic growth to more than 5 percent within two or three years, central bank Governor Agustin Carstens said in an August interview. The banking bill alone may lift growth by 0.5 percentage point within two or three years, he estimated in May.

The economy has expanded this year at the slowest pace since the 2009 recession, with growth of 1.3 percent in the third quarter from a year earlier.

The banking initiative “together with the package of reforms discussed in the past two months helps to increase the potential growth of Mexico,” said Ociel Hernandez, a strategist at Grupo Financiero BBVA Bancomer SA. He recommends buying fixed-rate peso bonds due in 2036.

Eoin Treacy's view

Governance is Everything is a mantra at, so when we see that a country is embracing reforms in order to boost long-term growth potential, we have reason for optimism.

Bull markets thrive on liquidity. While we have become accustomed to quantitative easing providing that fuel over the last few years, not least because bank's have been unwilling and in many cases incapable of extending loans, it would be rash to assume this situation is evident everywhere. If Mexico succeeds in reforming its banking sector, the potential for increased availability of credit should contribute to the growth of consumer spending.

The MEXBOL Index posted an impressive upside weekly key reversal from the June lows and continues to hold a medium-term progression of higher major reaction lows. A sustained move below 39,000 would be required to question medium-term scope for continued higher to lateral ranging. The US listed, US Dollar denominated, iShares Mexico ETF has a reasonably similar pattern to the Mexican Index.

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