Mexico stocks outlook dampened by weaker economic prospects
By Gabriel Burin and Noe Torres
BUENOS AIRES/MEXICO CITY, Aug 20 (Reuters) -The outlook for Mexico's stocks has been hurt by weaker prospects for the economy and investor worries about some of the new government's planned reforms, a Reuters survey of market strategists showed.
Local equities have traded below their lofty levels of the first half of 2024 since June, as cuts in economic growth forecasts coincided with a sell-off in Mexican assets after ruling party leader Claudia Sheinbaum won the presidential vote.
The S&P/BMV IPC index .MXX is expected to end this year at 56,000 points, advancing 3.5% from 54,104.68 on Monday, according to the median estimate of 13 stocks specialists polled Aug. 8-20.
However, the forecast year-end level of 56,000 points is 5.1% lower than 59,040 in May's survey. It would also leave Mexican equities 2.4% below last year's close of 57,386.25 points.
"The downward revision for Mexican stocks is due to the expectation of an economic slowdown in the second half of the year, which would limit growth of companies' operating results," said Jacobo Rodriguez, analyst at Roga Capital.
"Added to this, there is pressure on profit margins due to the depreciation of the peso and increasing financial costs, while some proposed reforms are causing nervousness among investors."
In May, the central bank cut its 2024 gross domestic product growth estimate to 2.4% from 2.8%. The economy has been decelerating as elevated interest rates, high inflation and the recent depreciation of the Mexican peso hurt consumption.
Among the country's top firms, state-owned oil company Pemex swung to a net loss in the second quarter, hit by lower sales and large currency exchange effects, while Spanish bank BBVA's BBVA.MC profit growth in Mexico, its main market, slowed.
At the same time, the new government's plan to elect all Supreme Court justices through a popular vote has raised alarm among investors who fear the change could weaken Mexico's checks and balances.
In Brazil, the Bovespa stocks index .BVSP is set to rise 3.1% to 140,000 points by year-end, the same consensus call as in May's poll, which would imply a 4.3% gain in 2024. Analysts sounded slightly more optimistic than in recent months.
"We reinforce the change of scenario in our last monthly report, projecting enough commitment by the government to avoid a fiscal deficit in excess of 1% of GDP," Monte Bravo analysts wrote in a report.
"The performance of Brazilian assets should be positive. The index is trading at multiples below historical standards, with companies that should present reasonable profit growth in the 2024-2025 period."
The Bovespa index is up 1.2% so far this year, having recovered from a sharp decline in June that was led by heightened worries about Brazil's fiscal picture, which have since diminished. In Mexico, the S&P/BMV IPC index has lost 5.7% from the start of 2024.
(Other stories from the Reuters Q3 global stock markets poll package)
Reporting and polling by Gabriel Burin in Buenos Aires and Noe Torres in Mexico City; additional polling by Purujit Arun and Sarupya Ganguly in Bengaluru; Editing by Ross Finley and Christina Fincher
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