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Mexican Stocks Rise on Credit Upgrade

January 16, 2002|From Reuters

Mexican stocks jumped Tuesday as investors cheered the decision by the Fitch credit rating agency to grant Mexico an investment-grade rating.

Mexico's IPC index of 35 stocks rose 184.92 points, or 2.9%, to close at 6,573.19, while the peso gained against the dollar.

Fitch upgraded Mexico's long-term debt rating to BBB-minus from BB-plus, citing the country's fiscal discipline as evidenced by the recent passage of the 2002 budget and a tax increase package.

Mexico's Congress voted to impose new taxes on consumers and end some corporate tax breaks and government subsidies, in a package lawmakers estimate will generate about $7 billion, or about 1% of gross domestic product, in additional funds.

Bank shares were among the strongest stocks Tuesday. "This [rating upgrade] is a big benefit for Mexican banks as it lowers their cost of capital, which will make them make more money and help them grow," said Jason Mollin, Latin American banking analyst at Bear Stearns.

Analysts said investors are hoping that Mexico's equity market will be given a further boost by a much-coveted rating upgrade from Standard & Poor's.

"This does open the door for a rating upgrade from Standard & Poor's," said Valentine Carril, Latin American strategist at Santander Investment in New York. "Almost a 90% chance."

However, S&P said Tuesday it will wait until at least next month before deciding whether to grant Mexico an investment-grade rating, to allow time for government officials to come to New York at the end of January to make their case.

An S&P upgrade would confirm Mexico's economic integration with the rest of North America, analysts said. It also would be seen as opening Mexico's capital markets further to foreign institutional investors, some of whom can invest only in countries with investment-grade ratings from all major rating agencies.

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