Corporates More Bullish on Mexico than Brazil

Whether fair or appropriate to lump them together, corporate officials, credit people and other market-watchers often tend to discuss Brazil and Mexico at the same time whenever the topic of prospects in Latin and South America arises. A March study by Fitch Ratings finds somewhat of a mixed bag regarding the outlook of each on the part of corporates.

Fitch’s study, which took place late 2013’s fourth quarter, indicates few are expecting particularly hot activity out of either nation early in 2014. However, the sentiment of those contacted by Fitch seems to indicate Mexico is expected to continue charging forward and, in the long term, at a much faster clip than Brazil, which has far more problems facing it. Fitch analysts noted that Mexico should benefit from the present regime having a year at this point to start implementing policies and, essentially, to get their feet under themselves. Optimism for Mexico also exists in part because of the expected continuation of recovery in US growth as well as energy reform in the form of Petroleos Mexicanos (Pemex) opening up to private investment and more service provider partnerships, including with those based in the US.

“Over the long run, energy reform should allow Pemex to reverse decades of under-exploration and production declines stemming from constrained investment,” said Fitch. “The greatest potential for significant production boost lies in deepwater crude and unconventional shale gas.” 

Meanwhile, in Brazil, service providers were particularly disappointed in Brazilian activity in late 2013, and elevated inflation – much worse than that of Mexico – is a large and growing issue. This is expected to escalate as the US continues to tighten its stimulus effort through its Federal Reserve and other means. That’s not to say every sector has been hit hard there or that Brazil is bereft of opportunities.

“The economy of Brazil continues to be challenging to forecast…however, the agricultural sector has experienced record harvests, which has had a positive impact on the trucking business,” a representative from Meritor Inc. reported to Fitch. “Infrastructure demands also continue to be high due to the upcoming World Cup and 2016 Olympics.”

- Brian Shappell, CBA, CICP, NACM staff writer
See more on the newfound problems facing emerging markets like Brazil, Mexico and others in the April edition of Business Credit Magazine, available late this month in print for and online at

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