U.S. stimulus to boost Mexico; LatAm stocks to outperform in short term: UBS

(Reuters) - Increased U.S. infrastructure spending and fresh rounds of economic stimulus will bolster Mexico’s manufacturing-oriented economy, a UBS Global Wealth Management executive said on Wednesday.

“[It’s] a good environment for Mexican exports to the United States, [Mexico’s] economy is more geared toward manufacturing and the U.S. market,” Alejo Czerwonko, chief investment officer for the Swiss bank’s wealth management business in Latin America, told the Reuters Global Markets Forum.

A better environment for private investments and shifting supply chains under the United States-Mexico-Canada-Agreement (USMCA) will benefit the country, Czerwonko said.

Czerwonko, however, expects the United States and Canada to ratchet up pressure on Mexico due to President Andres Manuel Lopez Obrador’s proposed state-led energy policy.

While Czerwonko expects Latin America to grow at more than 4.5% in 2021, he cautioned that economic activity in many countries in the region might not return to levels seen in the fourth quarter of 2019 until at least 2022, likely lagging other emerging economies.

Still, he sees Latin American stocks potentially outperforming emerging market equities in the next three to six months.

“LatAm assets are already discounting a challenging outlook, some of this ‘bad news’ will likely be priced out in the coming months amid a supportive global environment,” said Czerwonko, who expects Brazil’s real and Mexico’s peso to firm and sees opportunities in dollar-denominated Brazilian fixed income.

MSCI EM stocks index and MSCI Latam stocks index

With coronavirus cases continuing to rise and fiscal outlooks for most economies remaining uncertain, MSCI’s Latin America stocks index has lagged the emerging market benchmark over the last one year.

Czerwonko said Brazil’s government would protect investor confidence and public accounts by “bending but not breaking” its spending cap limit, even under public pressure to extend stimulus measures.

(This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Refinitiv Messenger platform. Sign up here to join GMF:

Reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Anil D’Silva