The Mexican stock market took a hit in 2008-2009 just like the U.S. stock market. The S & P 500 dropped 57% while the Mexican Stock Index dropped 68%. The fed in the U.S. started initiating its quantitative easing in 2008 to rescue the economy and the markets. Many emerging countries, like Mexico, benefited from this policy. Lower rates in Mexico acted as a stimulus to the economy. The Mexican stock index had recovered all of its losses by 2013 much like the U.S. stock markets.
However, a strange thing happened with the Mexican stock market, it didn’t continue to rally like the U.S. stock market. Perhaps it was the fact that the Fed now controlled interest rates, which it had never done in the history of the financial markets? Perhaps it was that the Fed was buying stocks for their own account to shore up the markets? Could the Fed be manipulating our markets? One never knows, but, there is a lot of circumstantial evidence to support the case.
So, the Mexican stock markets were given a chance to correct on its own. This has not been the case in the U.S.. What does this mean?
While the Mexican markets have recovered well this year, they are still a little extended. The risk in the Mexican stock market is much less than the U.S. markets that are extremely extended (not that it can’t become more of a bubble). I think that the longer term outlook for the Mexican stock market looks good.
A view of the U.S. stock market from 2013 is below. This is what happens when the Fed doesn’t allow a normal correction in our markets. While a bubble phase could still evolve, I think you can understand why I am cautious about the U.S. stock markets.