Emerging Trends: Stocks, Sectors & Styles

June 9, 2024

KEY THEME: the shared reason for the eye-opening, post election sell-off in both Mexican and Indian markets, were high expectations...

A. FOR MEXICO, EVEN BEFORE THE ELECTION, EXPECTATIONS WERE OVERLY OPTIMISTIC GIVEN THE REALITY OF SLOWING ECONOMY AND THE BUDGET DEFICIT

1. Economy is slowing down a notch (retail sales and fixed assets are cooling down)

2. Manufacturing is also decelerating (despite the perception that Mexico benefits from nearshoring at the expense of China)

3. Mexico Government Budget deficit remains elevated

BUT

4. Ironically, despite the misperceptions, even the corruption is improving

5. The carry trade in Peso is likely to resume

• as Peso is one of the best carry trades in the world
• given the ever-growing flow of remittances

6. Long-term flows into Mexico are still continuing

• as evidence by the Fresh Buy on 30YMexico

B. IN INDIA, WITH THE RISE OF CENTRALIZED POWER, CORRUPTION UNFORTUNATELY (AND, INEVITABLY) GETTING WORSE

1. India has the highest GDP growth among the major countries

2. Given that construction and manufacturing being the driver of the New India model, the government's structure and Modi's role in managing sustainable growth are crucial

3. The story remains largely good but the pace of investment flows is slightly slowing down (just tough comparisons)

• Fresh Sell on India Small Stocks on Jun 4, 2024
• Sell on India ETF since May 14, 2024
• More Sells across Indian single name stock

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