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Trip Report: Mexico

In the last few weeks, we toured 3 major Mexican cities: Mexico City, Monterrey and Guadalajara, to meet with 17 companies and measure the pulse of the economy before this weekend’s presidential election. This trip was taken with an open mind; aiming to stress test our investment thesis for the country, which has been among the lowest allocation in our portfolios since Q4 2016.

Concluding thoughts:

The outlook for Mexico is less bright compared to the past 8 years and material risks are not totally discounted by the FX and equity markets, in our opinion. Earnings growth for most Mexican companies remain uncertain and valuations do not price in the risks we identified.

Having said that, I met with some exceptionally well-run companies, mostly in the consumer and infrastructure sectors, that benefit from structural growth trends, have built sustainable competitive advantages and are executing a well-thought strategy. Thus, would certain equities experience price corrections that more than discount the risks, we are ready to be contrarian and buy high quality companies trading at a discount to their intrinsic value.