Mexico offers promise for tenacious investor

CANCUN, MEXICO — CANCUN, Mexico -- With a lot of U.S. investor money lookin for a place to land, Mexico is being touted as a land of opportunity in 1993.

The psychological groundwork has already been set. In this resort city, for example, economic "hands across the border" remain locked in a firm, friendly handshake. Tourists greeted by the likes of McDonald's, Domino's Pizza and Gold's Gym here understand the desire of U.S. firms to profit from tourists and locals.


However, the concept of an individual investing in this economically awakening country remains a new and worrisome concept.

"We own shares of Telephonos de Mexico [Telmex] and Cifra, which we bought on a tip," said the woman seated across the aisle from me on my flight down, a travel agent vacationing with her husband. "We're not sure whether they've peaked and we should sell."


Many investment experts believe the best is yet to come from Mexico and its investment opportunities, thanks to free-enterprise policies of Mexican President Carlos Salinas de Gortari, a Harvard Ph.D. who keeps in touch with needs of even the poorest citizens.

"President Salinas is a good guy, not a crook like some politicians," said one laborer I chatted with, offering his grandest compliment about any government official.

The U.S. investor must bear in mind that market ups and downs are considerably more pronounced and frequent south of the border. The $125 billion Mexican stock market is up a commendable 19 percent in 1992. It accomplished that with a big early run-up, followed by a long steady decline. This was followed with a revival sparked by a pre-election statement by Bill Clinton that, if president, he'd support the North American Free Trade Agreement to strengthen economic ties, with certain amendments.

"Investors must be aware of the tremendous volatility, in which stocks move 5 percent up or down in a matter of hours," warns Eduardo Cabrera, manager of Latin American equity research for Merrill Lynch & Co. "Even Telmex, the bellwether which holds a third of the Index of Prices and Quotes, can fall or rise two points in a day, so it's not for the faint-hearted."

Merrill Lynch lately turned positive on Mexico because interest rates have declined there, its foreign exchange rate continues steady and its economic downturn has bottomed out. Third-quarter corporate profits were down, but not as much as expected. Salinas is a key.

"I hope that when Salinas is done in Mexico, he'll come run the U.S. government, for he's bright and disciplined, with a coordinated plan to govern the economy," says Alan Rappaport, president of the $109 million Mexico Equity and Income Fund, a NYSE closed-end fund up 19 percent in market price this year.

Don't invest short term.

"If you're a medium-term investor, this is a good time to buy," says Soraya Betterton, portfolio manager of the $120 million G.T. Latin America Growth Fund, an open-end fund down 7 percent this year and temporarily closed to new investors. "About 47 percent of our fund is in Mexico now because we see its prospects as bright."


The good news for the concerned shareholder on my recent airline flight is that both Telmex, the $4 billion telephone monopoly, and Cifra S.A., the largest Mexican retailer, are highly recommended by Cabrera and Betterton. Those stocks are sold in the United States as American depositary receipts (ADRs), Telmex on the NYSE and Cifra over the counter.

In a country with only six telephone lines per 100 people, Telmex offers opportunity for growth. While the Mexican phone market will be open to competition in 1996, few threats to Telmex are seen. Meanwhile, Cifra, holding one-third of the market share in Mexico City, is expanding throughout the country. Its joint venture with Wal-Mart Stores in Mexico bodes well.

Cabrera also likes Tolmex, largest subsidiary of Cementos Mexicanos, which, holding 27 percent of the cement market in Mexico, should benefit from many large projects. It's sold over the counter as an ADR here.

Among the three closed-end NYSE funds specializing in Mexico, Thomas Herzfeld, president of Miami-based Thomas J. Herzfeld Advisors Inc., believes Emerging Mexico Fund Inc. stands as the least expensive. However, Mexico Equity & Income Fund and the Mexico Fund are also reasonably priced.