Trade Deal Signed For North America
The USMCA, the United States Mexico Canada Agreement, was signed by leaders of all three nations about a week ago. Signed at the G-20 Summit in Argentina, the deal is the culmination of nearly two years of negotiation between North Americas three neighbors and may signal the onset of a new era of economic activity. But there are still hurdles to overcome.
To start, the deal was signed without a clear agreement between the US and Canada on steel and aluminum tariffs. Tariffs on steel and aluminum were among the first shots fired in the trade war, it’s ironic they’re still unresolved. Canada’s President Justin Trudeau says Canada and the US will continue to work towards a long-lasting agreement until then tariffs will continue to impact the supply chain and the costs of metal products.
The biggest hurdle is ratification. All three nations must ratify the document in their respective legislatures, Canada and Mexico shouldn’t be a problem but the US just had a major shift that may cause trouble for President Donald Trump. Now that Democrats are in control of the House Trump can expect a fight.
Trump’s message to the House is this; he is planning to terminate NAFTA in six months. That gives the House and Senate six months to ratify the new agreement, work out a new deal, or have trade relations set back more than three decades. If NAFTA is terminated and the USMCA is not ratified the US will be forced to fall back on pre-NAFTA regulations that were in place back in 1994.
Mexico Trades At Three Year Lows, A Cheap Entry to This Emerging Market Powerhouse
In Mexico, the inauguration of newly elected President Andres Manuel Lopez Obrador has the market trading near three-year lows. Obrador was elected on a platform of reform, pledging an end to corruption, poverty, and extreme violence. Among his first moves was to cancel a major infrastructure project, a move that sparked heavy selling in Mexico’s capital markets.
Managers at the Mexico Fund highlight some key points from Obrador’s inaugural speech that, if successful, will help bolster Mexico’s economy over the long-term. Among them are his commitment to preserving the autonomy of Banxico, Mexico’s central bank, to maintain prudent fiscal policies, to keep taxes low, and combating corruption. Corruption, more than anything, has been plaguing Mexican government and holding back economic development for some time.
The Mexico Fund is a non-diversified closed-end fund focused on long-term capital appreciation of Mexico’s largest companies. It trades on the NYSE under the ticker (MXF) The fund is heavily invested in Mexico’s infrastructure, consumer, and financial sectors and is exposed to both Mexican, North American, and global economic activity through them.
Among the portfolio are names like Cemex, Walmart de Mexico, and Fomento Economico de Mexico; the worlds largest producer of white concrete, the largest retailer south of the Rio Grande, and the world’s largest bottler of coke (and other beverages). The fund yields about 5.25% at today’s prices, near $13.00, which is much better than average (the sell-off in Mexico has helped yield, if not share prices). The dividend is managed through an MDP so there is a possibility it will be increased or lowered for the next year.