[net.invest] Mexico Fund

ka@hropus.UUCP (Kenneth Almquist) (02/16/86)

In my article on the First Australia Fund, I stated that open ended
funds were generally preferable to closed end funds.  An example is
the Mexico Fund, which trades on the New York Stock Exchange at a bit
over $2 a share, or about half of the net asset value per share.

I can make a fairly confident guess at the history of this fund.  It
was probably launched when all the experts were predicting that oil
prices could go nowhere but up.  When oil prices went down instead,
Mexico, with its large foreign debt, was put in an economic bind, and
was forced to take drastic austerity measures which made investing in
Mexico unappealing.  Had the Mexico Fund been an open ended fund,
investors could have redeemed their shares at the net asset value,
possibly forcing the fund out of business.  But since the Mexico Fund
is a closed end fund, the only option open to investors was to sell
their shares to someone else.  Since nobody else wanted to invest in
Mexico either, investors who wanted to get out were forced to sell
their shares at far less than the net asset value.

While the fact that the Mexico Fund is closed ended has proved disas-
trous for the investors who bought it at near the net asset value,
it does provide an opportunity to anyone who is bullish on Mexico
now.  If the Mexican economy improves, not only will the value of the
holdings of the Mexico Fund increase, but the discount from net asset
value will probably decrease as well.  Thus you could do a lot better
investing in the Mexico Fund than investing in Mexico itself.  Does
anyone think that Mexico is headed for better times?
				Kenneth Almquist
				ihnp4!houxm!hropus!ka	(official name)
				ihnp4!opus!ka		(shorter path)

ekrell@ucla-cs.UUCP (02/21/86)

In article <285@hropus.UUCP> Kenneth Almquist writes:
>
>Does anyone think that Mexico is headed for better times?

Not me. The drop in oil prices means bad times for Mexico. They just had to
lower their prices some U$ 4/barrel. Every drop of a dollar in oil prices
means billions in lost revenues. The exchange rate is running now about
500 pesos for a dollar (It was 300 a few months ago). Currency analysts
predict a 1000-to-1 exchange rate before the end of the year. Thus, stock
prices would need to double just to preserve your current investment in dollar
terms. That is unlikely.
-- 
    Eduardo Krell               UCLA Computer Science Department
    ekrell@ucla-locus.arpa      ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrell

miller@loral.UUCP (David P. Miller) (02/23/86)

I second Eduardo's view on the future prospect for Mexico. I would also like to
add that the only chance that Mexico has for minimizing economic damage, both
present and future, is for its foreign lenders to extend the repayment schedules
for at least 5 years longer, making it possible for the country to sustain a 
15% to 25% of GNP debt burden. A figure like that one would allow Mexico to
create more internal savings and investments needed to achieve real growth,which
in turn, is badly needed to amortize the debt burden.
I would also like to add; don't expect Mexico to cooperate with the USA in drug
erradication. If anything, the supply should increase further in order to make
up for the shortage of financial capital in the other sectors fo the economy.

				     
					    BIG DAVE.


-- 

David P. Miller - Loral Instrumentation.           /    USUAL   \  
sdcsvax!sdcc3!loral!miller                         \ DISCLAIMER / 
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