Word: mexicanization
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Royds isn't rushing out with buy orders the way Ramos is, however. Her view is that Mexican stocks may be cheap but that at the moment there's no way to tell. The peso crisis has thrown all the best-laid economic forecasts out the window, so the educated guesses on next year's growth rate, inflation rate and interest rates have become wild guesses. So much is up in the air, in fact, that it's impossible to make predictions about corporate earnings, and as everybody knows, if earnings are a mystery, you can't possibly say whether...
Ultimately, Royds too is an optimist on Mexico, and for quite an interesting reason. "I don't believe Mexico will be allowed to go wrong," she says, alluding to the vast amounts of foreign money invested there. What the press has reported as a negative -- two-thirds of Mexican stocks owned by foreigners -- she regards as a positive. The U.S. can't afford not to bail out Mexico, and late last week, it offered to do just that with a $7 billion emergency slush fund...
...useful lessons already. The first is that emerging markets are particularly jumpy, with 200% gains one year and 60% drops the next -- as we've seen, for instance, with Turkey. And the drops get far more attention than the gains. Who remembers that the recent 30% fall in the Mexican Bolsa was preceded by a 70% rise in the NAFTA year...
...Zedillo wasn't sure how big his nightmares could be, he is now. So are millions of Mexican citizens, a good many battered international investors and the world at large. All it took was a few wild days of free fall by the Mexican peso, which hit the ground with a force that shattered some bright assumptions about the immediate future for what had seemed one of the most promising economies in the developing world...
...what it did instead. In a world where international investment money can cross borders with a few taps on a computer keyboard, a thunder of key taps arose from the offices of stunned investment-fund managers in New York City and other financial centers. As they swiftly dumped Mexican securities, the peso went into a tailspin, at the worst point losing 40% of its value. Within nine days of the start of the crisis, as much as $8 billion -- 12% of Mexico's total foreign investment -- may have fled the country...