STOCK-PICKED CAN’T LIVE BY FX ALONE

Published:  October 30, 2015

Currency isn’t everything. Despite the Mexican peso’s 12 percent year-to date decline against the dollar, the stocks of export- oriented mining companies such as industrias penoles and Minera Frisco have underperformed the Mexican stock market, which has risen 4 percent since the start of the year, compared with24 percent and 59 percent declines, respectively, for the miners. Meanwhile, the stock of two retailers that import goods priced in dollars and sell them in pesos have significantly outperformed the market. Shares of retail conglomerate Grupo Sanborns and department store chain Liverpool have increased 27 percent and 57 percent, respectively a near- perfect  mirror of the mining stocks’ performance. The reason for the counterintuitive results is that the mining companies are also struggling with falling commodity prices, while the retailers have benefited from improving consumer demand in Mexico. There may be similar plot twist ahead; despite the fact credit Suisse analyst see the peso declining another 10 percent over the next three month, they still expect shares of domestically oriented cable television companies to outperform. That said, currency does count for something. The bank’s analysts expect the peso’s depreciation to help most companies with costs in pesos and revenues in dollars- but given the mining sector’s ongoing challenges, they prefer industrial companies.

Source: The Financialist

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