Don't be lured into Mexican shares, Credit Suisse says

Strategists at Credit Suisse cautioned clients not to be lured into buying Mexican equities, even as they reduced their 'Underweight' position, citing eight reasons why recent strength in the MSCI Mexico index on the back of strength in the country´s currency, the peso, might be potentially misleading.

Nevertheless, while they continued to recommend underweighting Mexican shares versus their benchmark, they now did so less aggressively than before, moving from 20% underweight to 10% underweight, adding that the cash released by that move would be temprarily plowed into additional cash.

The eight reasons cited by the Swiss broker were: (1) despite a new more conciliatory US tone, substantial NAFTA related risks remain; (2) growth dynamics-particularly the investment outlook-remain depressed; (3) the 2017/18 equity climate will likely be characterized by tightening real interest rates; (4) Mexico's low proportion of USD sales minimises hedging of any MXN weakness; (5) the ascendance of MORENA's popularity risks a more leftist political agenda; (6) valuations remain expensive and earnings growth has been elusive for a decade; (7) there is 19% USD potential downside for Mexican equities on our macro model; and (8) GEM equity and debt investors are already broadly exposed to Mexican assets.

Over the past month, MSCI Mexico has outperformed emerging markets as an asset class by 10% when measured in US dollar terms and the benchmark IPC index was now at an all-time high.

On a separate note, Credit Suisse listed the eight "value-creating" names which it continued to rate at 'Overweight'.

They were: FEMSA, Banorte, CocaCola Femsa, Fresnillo, Cemex, Arca Continental, Santander Mexico and Industrias Penoles.