Market Watch : Private Investors Find an Open Door in Mexico : Investing: Privatization has lured big corporate buyers, who have grabbed hotels and plants. But individuals can also get in on the action by playing the market.

As Mexico’s government has put state-owned hotels and factories on the block, big domestic and foreign corporations have snapped them up in well-publicized sales.

Less well known are the increasing privatization opportunities for individual investors.

For example, private investors can buy stock in state-owned Telefonos de Mexico, the national telephone company, which the government plans to sell. Shares in state-owned banks--also privatization candidates--are expected to be available to foreigners soon.

Investors can buy stock in companies already privatized, such as Mexicana Airlines. Or they can invest indirectly, by obtaining shares of firms that are buying state-owned companies.

Those who believe a larger role for business will be good for the Mexican economy--but who don’t want to fret over specific stocks--can choose from 59 Mexican mutual funds.

There are even alternatives for those who want to invest in Mexico but prefer to keep their money in U.S. markets. The Mexico Fund, a mutual fund of Mexican stocks, trades on the New York Stock Exchange. Since it was launched in 1981, the $150-million fund has paid $50 million in dividends.

American Depositary Receipts--virtually equivalent to shares--in three Mexican companies trade in the United States, including Telefonos de Mexico, one of the best-known pending privatization targets. ADRs in Telmex, as it is called, doubled in price last year, in dollar terms. Douglas A. Campbell, a Los Angeles investment banker, said he expects them to continue rising, mainly because of the government’s plans to sell its controlling interest.

However, investors should keep in mind that Telmex is one of 18 national telephone companies that governments around the world are trying to sell. In addition, buyers will need to make major investments to modernize the company.

The other two Mexican companies traded in the United States have performed less spectacularly.

Tamsa, a steel tubing maker, has benefited from the liberalized steel-trading agreement between the United States and Mexico, increasing exports from 35% of its sales in 1987 to 57% last year. But a Mexican analyst said the export increase reflects low demand from the domestic oil industry, rather than growth for the company. Tamsa is not a stock that analysts generally recommend, except for the very longest term.

Cifra, Mexico’s largest retailer, is considered a good mid-term investment by many Mexican analysts.

“The company’s stores have name recognition, and it has fabulous locations,” said one portfolio manager who is heavily invested in the stock. But Cifra is barely traded in the United States, a drawback for any investor who needs liquidity.

Liquidity is a good reason to trade stocks directly on the Mexican Stock Exchange, Campbell said. Trading in Telmex, Tamsa and Cifra stocks is brisker there than in the United States.

Still, investors should remember that Mexican stocks generally do not trade in volumes as high as those of most issues on U.S. markets. For some issues, liquidity can be a problem.

Trading on the Mexican Stock Market must be done through a Mexican broker, but many major U.S. brokerages work with their Mexican counterparts and can often help make contacts.

Mexico has no exchange controls or restrictions on removing investments or profits from the country.

Previously, foreign ownership of stock was restricted to no more than 49% of any Mexican company. But a year ago, Mexican laws were changed to let foreigners who agree to make only passive investments buy unlimited amounts of stock in any of the companies listed on the Mexican exchange except banks or brokerages. About $340 million has been invested under those provisions.

A more recent law created a category of bank stock that foreigners could buy, but none of the state-controlled banks have issued such shares, preventing foreign investors from participating in the rally that bank stocks have experienced in anticipation of privatization.

A constitutional amendment, in the process of being ratified by state legislatures, would allow the government to sell its stake in the banks, which were nationalized eight years ago. Regulations governing the sales are expected to contain provisions for foreign ownership.

Meanwhile, foreign investors can participate in privatization through other stocks.

Mexicana Airlines, which was sold last year by the government, is already publicly traded. The country’s other major airline, Aeromexico, which was also bought by private investors in 1989, last month received Mexican Securities and Exchange Commission approval to launch a public offering. The stock is expected to begin trading by year-end.

In addition, several corporations listed on the stock market have bought previously state-owned companies.

For example, Grupo Industrial Alfa paid the government $195 million for Tereftalatos Mexicanos, a company that complemented a unit of Alfa’s chemical division. Alfa consolidated marketing and administration for the two companies, making both more efficient, said Juan Morales Doria, Alfa’s senior vice president.

Similarly, Empresas Frisco, a mining company, bought the government’s stake in two mines and a hydrofluoric acid producer.

One company, cookie maker Gamesa, even sold stock for the first time last month to raise $11.5 million, part of which will be used to buy four sugar mills that the government is selling. The mills will provide the company with a sure supply of sugar, the prospectus stated.

Like other companies on the Mexican Stock Exchange, these corporations are considered blue-chip issues. However, investors should be aware that Mexican disclosure requirements are not as rigorous as those in the United States. Larger Mexican brokerages have research departments that can help provide information.

But investors who prefer to trust the local market experts’ judgment and diversify their portfolios at the same time may want to consider mutual funds. The 45 funds operating during the first nine months of last year posted an average return on investment of 65% in dollar terms, despite slightly unfavorable currency movements.

Those returns, after a 66% return the year before, have made up for the devastating losses during the worldwide stock market crash of 1987--at least for investors who stayed in the market.

They could also be interpreted as an investors’ vote of confidence in privatization.