Despite Drug Violence, Business Is Booming in Mexico

| Dec. 9, 2010 |

Published by Minyanville and Yahoo! Finance

Monday saw the opening of Madonna's new high-end gym in the wealthy Bosques de Las Romas suburb of Mexico City. With access to the gym over $160 a month, it was proof of the rising wealth to be found in areas of Mexico.

And so began a successful week for Mexican authorities, looking to project an image of prosperity and welcome investment.

Third quarter results out a fortnight ago indicated 5.3% GDP growth, above initial projections of 5.0%. Compared to the same period of 2009, the figures were led by an 11.9% rise in commerce and a 9.6% growth in manufacturing.

Falling oil production was offset by a 41% increase in crude prices leaving a 0.7% growth in oil-sector output.

This led nicely into last week's record closing high of the IPC index at 37,399.47 (up 0.3%) on Thursday, following Wednesday's 1.3% rise to 37,277.56. It finished the week slightly down to 37,386.

The rise is thought to be linked to a sales boost in the United States, as retailers there posted better-than-expected November sales results in the lead-up to Christmas. Walmart de Mexico (WMT) is due to release its November results on Tuesday. Roughly 80% of Mexico's exports cross its northern border.Mexican cement-maker Cemex (CX) saw shares climb this week to $9.72 as did other cement companies and steel-makers, such as Industrias (IBA) stock to $46.39. Cellphone giant America Movil (AMX) saw shares slip down to $57.19.

Mexico's November inflation figure will be published Thursday.

In a coup for Mexico's airline industry, the US Federal Aviation Administration (FAA) upgraded Mexico's aviation safety rating on Wednesday as they felt that the country had demonstrated “significant progress” in correcting earlier regulatory lapses.

The surprise news comes just four months after US authorities shocked both Mexican and US officials by downgrading Mexico's ranking. The move means that airlines in Mexico will be able to add new routes into the US. It is rare for a rating to be regained so quickly.

World's richest man, Mexican Carlos Slim, purchased a stake (less than 2%) in BlackRock (BLK), an asset management firm based in New York. The news comes after Bank of America (BAC) and PNC Financial Services (PNC) announced they would be selling 42 million shares in the company.

Slim has been talking of increasing his US investments for some time. He already holds positions in Saks (SKS), Bronco Drilling (BRNC) and the New York Times (NYT), though rumors of a greater investment in the latter have been denied by Slim.

Bank of Nova Scotia in Canada is setting its acquisition sights on Mexico, Chile and Peru, as its works towards purchasing the remaining DundeeWealth.

Meanwhile from Canada, metal explorer Silver Sun has agreed to buy a mineral property in Mexico from Maggiore Capital in an all-stock deal, forcing Silver Sun's shares to rocket to an all time high of $0.23 on Friday.

This week also sees the Cancun Climate summit. More than 250 investors from North America, Europe, Asia, Australia, Latin America and Africa—with collective assets topping $15 trillion—signed an open letter to negotiators stating that action must be taken against global warming or economic disruption far more severe than the recent
financial crisis.

Mexican authorities had a minor coup in their capture of three major drug and gang cartel leaders this week, as well as a visit from US Secretary of Homeland Security Janet Napolitano. The Secretary focused on a frequent flyer programme to be enacted between the two countries, allowing easier passage through immigration and customs, more good news for the country's aviation industry.

However, events were overshadowed by the discovery of a mass grave in the north of the country. In it were 20 victims including two US citizens. Ongoing drug violence is threatening to place a heavy burden on Mexico's economy.

The country's most affluent city, Monterrey, has seen some businesses put factory investment on hold as the city sees a surge in murder as well as extortion. Foreign manufacturers have frozen plans to invest in factories that export to the US. Cemex is headquartered in the city while companies such as General Electric (GE) have factories there too.

Tourists and musicians have cancelled visits to the city, prompting fears that Madonna may not venture too far from her Mexico City gym.

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