The Mexican stock market has rebounded in recent days from its low of the current period of declines. But this movement is not large enough to think that the bottom has been reached amid growing risks of inflation, rate hikes and recession.
The index S&P/BMV IPC of the Mexican Stock Exchange (BMV), which groups the 35 most traded shares in the country, closed this Friday at 47,042.94 points. This means a recovery of 5.67% against an intraday low of 44,518.73 units on September 1 (the most recent base).
Although a positive movement of 5% is not a small thing, it is a relative number. It should be taken with a grain of salt as at its current level it is still 17.6% below the most recent record high of 57,064.16 units on April 1st. This puts him in a weak position and many doubts.
“Inexperienced investors get ahead of themselves. They want to enter when they see decreases in prices, but it is not yet time. We are in an environment of inflation that has not yet been resolved and the falls have been shortened. Perhaps in the longer horizon,” said Jorse S. Soto, manager of private banking.
With its last close, a fall of 3.04% would be enough to return to bear market o bear market (which is when the market as a whole is down 20% or more from its most recent high), a level at which economic fears outweigh almost all optimism. The current one is at 45,651.33 units.
Foot on the inflation brake
What is certain for now is that inflation remains on the rise. In the most recent reading, the National Consumer Price Index (INPC) of the Inegi registered in August 0.70% and 8.70% year-on-year, levels not seen in 22 years. That would support an aggressive rate hike by the Bank of Mexico.
According to a Citibanamex survey, experts’ expectations for the next increase in Banxico’s key rates rose from 50 basis points to 75 basis points. The estimated median for the reference rate at the end of 2022 went from 9.50% to 9.75%, reported last Tuesday.
“As long as inflation does not subside and interest rates continue to rise, we can see new lows. Complications will continue for companies because consumption is depressed. At the same time, the fourth quarter is approaching, which could bring more inflationary pressures,” said Jorge S. Soto.
slow descent
Although it is true that the most recent crises that have hit the local stock market, that of the Covid-19 pandemic in 2020 and that caused by high-risk mortgages in 2008, had a shorter duration from maximum to minimum, which we live now does not yet touch comparable depths.
In 2008 the S&P/BMV IPC it went from a ceiling of 32,001.13 points in June to a minimum level of 16,480.01 in October, with an accumulated fall of 48.5 percent. For the express collapse of the pandemic, the ceiling was 45,645.93 points in February to 32,503.25 units (-28.79%) on April 3, 2020.
In 2022, the drop from the April record to the last low has lasted for five months, more than the four in 2008 and the two in 2020. This is accentuated when considering the high probability that inflation, the main cause of the negative trend could take longer.
Jonathan Heath, subgobernador del Banxicoexplained on Thursday that the central bank is striving to make inflation record the ceiling of this upward period in the third quarter and from there start the decline, but emphasized that the rate hikes have effects after six months.
At a time when the pressure on the economy is refusing to let up, the fall in Mexico’s main stock index could deepen. The door remains open as long as the results of the restrictive monetary policy are not observable and fears of recession remain.
The Mexican stock market is in a complex situation, with a drought of initial public offerings (IPOs) of almost five years, aggravated by the bankruptcies and delisting intentions of issuers from various sectors such as Aeroméxico, Sanborns and Monex, and which is exacerbated by its weak performance.
jose.rivera@eleconomista.mx
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