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South American Market Report

Mexican Market Report

Economic and Political News for the Week Ending April 7, 2000

The Mexican stock market story was similar to the NASDAQ story this week. Despite plummeting 3.7 percent early in the week amid turmoil in the NASDAQ, which actually declined by as much as 13.6 percent on Tuesday before rebounding later in the day, the Mexican stock market recovered in tandem with the NASDAQ on Thursday and Friday, ending the week up 4.7 percent to 7540.09 in an impressive reversal of fortune. The peso traded similarly, weakening earlier in the week from MP 9.248/USD to MP 9.37/USD before rebounding to close at MP 9.295 by Friday.

Mexican debt traded down on the increased volatility. The spread on the UMS '26 bond ended the week up 35 basis points on the back of the increased market volatility. Local interest rates also rose slightly as a result of the turmoil evident early in the week. Cetes rates also rose slightly in this week's auction. The 28-day cete rose 4 basis points to 12.92 percent, while the 91-day cete rose 11 basis points to 14.13 percent.

Table 1: Dollar-Adjusted Bolsa vs. UMS 26

Mexican economic figures continue to be positive. Several economic figure reported this week indicate that the Mexican economy remains on solid footing, with consumer spending growing strongly, inflation declining lower than expected, and the trade deficit under control.

ANTAD, The National Association of Supermarkets and Department Stores, said total sales for the month of February rose 11.8 percent compared with the same month last year. General merchandise grew 16.7 percent, clothing sales rose 10 percent, and supermarket sales climbed 9.8 percent, providing further evidence that the Mexican consumer spending is strong.

Consumer prices rose 0.55 percent in March, lower than the expected level of 0.60 percent. The peso's strength is contributing to the better than expected figures, which is reducing the cost of imported components and raw materials.

The February trade deficit narrowed to USD 312 million from a USD 576 million deficit in January. The narrowing was attributed to higher oil prices as well as a large increase in car exports, both of which offset increasing imports of consumer goods.

US Trade Representative Charlene Barshefsky said the US may lodge a formal complaint with the World Trade Organization as early as July, charging that Telmex is a dominant carrier that is failing to provide its competitors reasonable access to its network. If a case is brought before the WTO, it would be the first telecom-related complaint to come before the WTO in the five year history of the organization. The comments were applauded by US telecom giants AT&T and MCI Worldcom, while Mexican Federal Telecommunications president Jorge Nicolin indicated that the US does not have a case against Mexico, since the Mexican government plans to establish new telecom regulations by year-end.

PAN Presidential Candidate Vicente Fox accused the government of manipulating the peso to convince voters the economy is booming. In what appears to be an effort to prey on fears of voters, Fox said the PRI is setting up the country for yet another post-election devaluation. The Finance Ministry countered by pointing out that, unlike 1994, the peso floats freely, with its price determined by the market.

Corporate News for the Week Ending April 7, 2000

GMD announced this week the commencement of an exchange offer, in which holders of its 8-1/2% Guaranteed Notes due 2001 will be exchanged for newly issued offshore certificates representing a fractional beneficial interest in the assets of the GMD Bondholder Trust. The exchange offer will expire at 5:00 p.m. New York City time, on May 3, 2000, unless otherwise extended. The assets of the GMD bondholder trust total USD 95.7 million, or approximately 38 cents on the dollar before expenses. Assets to be contributed include cash, PICS, the toll-road bonds issued by the government as part of its toll road bailout, real estate, and newly issued peso-denominated and dollar denominated GMD notes backed by letters of credit. The exchange offer has gotten of to a good start, with over 80 percent of existing bondholders tendering their notes already.

Cemex announced its entrance into the New Economy this week through a USD 50 million internet start-up investment. The cement giant will take a USD 20 million stake in PuntoCom Holdings, a Miami-based fund that invests in Latin American Internet companies, with business-to business companies being the primary target. The company will also invest USD 30 million in PuntoCom Investments, a fund that will invest in Latin internet startups. Meanwhile rumors also resurfaced that the company is seriously considering the acquisition of Southdown, the second largest cement manufacturer in the US. Cemex officials continue to deny the rumors, indicating that they are not interested in Southdown under current market conditions.

Cablevision, Mexico's largest cable TV company, is planning a roadshow during the last week of April as part of its planned initial public offering. Televisa currently owns 51 percent of Cablevision, while Telmex owns 49 percent. The IPO will likely consist of a 24 percent stake of Cablevision currently owned by Telmex, while Televisa will retain its majority stake. Cablevision is currently undergoing an upgrade of its Mexico City network to a 750 megahertz broadband system that can handle internet traffic. About 20 percent of Mexico City is already broadband, and Cablevision expects the capital city to be fully wired for broadband within 2 years. Telmex's share sale will allow Cablevision to expand outside Mexico City, as the company has been unable to do so since the Federal Competition Commission ruled that a Cablevision expansion would give Telmex excessive power through the potential dominance of both telephone and cable networks.

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