Looking at the country through an economist’s lens, Mexico’s economy can be described as mostly predictable and rarely volatile. However, the same cannot be said of Mexico’s stock and bond markets and currency. Given strong links to the United States’ economy, Mexico’s macroeconomic variables tend to move broadly in conjunction with the ups and downs of its northern neighbor. When the U.S. is expanding, so is Mexico; if the U.S. is in a recession, so is Mexico. However, Mexico’s asset prices tend to act and react to their compatriot emerging market asset classes – which are much more volatile. That said, Mexico’s principal asset classes tend to be “low beta” versions relative to most emerging markets (EM), so that when EM equities or bonds do very well, Mexico lags, but when EM sells off, Mexico acts like a relative safe haven. The Mexican peso is another matter.
Mexico has several things going for it. As mentioned above, the country has forged strong links with the U.S., especially after the formation of NAFTA. As the country has an abundance of relatively cheap labor, it was an ideal, close-proximity destination for manufacturing plants from the U.S. and Canada. Through time, the country has benefited from technology transfer and has been able to increase the skills of its workforce. Second, for most of the last few decades, well-trained and well-respected policymakers have been at the helm of Mexico’s central bank and finance ministry. Under their leadership, Mexico has been able to weather several global crises and also transitions to different presidential leadership, by implementing conservative fiscal policy and prudent monetary policy.