IMPACT OF THE TRADE AGREEMENT : INVESTING : Pact May Spur Big Changes on Mexico Market

The free trade agreement proved anti-climactic for North American stocks on Wednesday, but experts say the pact’s long-term implications for investors still are likely to be significant.

The Mexico City exchange’s Bolsa index of 40 major stocks added just 9.94 points to close at 1,525.45. It has followed other world markets sharply lower since peaking at 1,907 early in June.

In the United States, the Dow Jones industrial average slipped 10.27 points to 3,320.83. And in Canada, the Toronto Stock Exchange’s 300-share index sank 26.92 points to 3,377.75, though that market was dragged down by a selloff in gold-mining stocks, not trade concerns, analysts said.

The lack of response by investors was anticipated, experts said, because the trade pact has been in the works for so long that only a failure to reach agreement would have surprised the markets.

And all along, most investors’ focus has been on Mexico, because it is viewed as the economy--and stock market--with the most to gain long-term from freer trade.

There was one sign Wednesday that the trade agreement is in fact bolstering confidence in Mexico’s economic future: The peso jumped in value, continuing a rise that began several weeks ago.

One dollar bought 3,073 pesos on Wednesday, down 21.5 pesos from 3,094.5 on Tuesday. In mid-July the dollar was worth 3,118 pesos.

The peso has strengthened as Mexican investors have dropped fears that the government might need to devalue the currency. That is fueling a continuing repatriation of Mexican savings from other countries back to Mexico--providing much-needed capital.

In the near term, that repatriation of funds will be more important to the Mexican economy than the trade accord, said Mark Fane, a Mexican stock expert with investment firm Blair, Foster & Co. in Los Angeles.

But Fane said some investors on Wednesday did appear to target a few Mexican stocks expected to benefit early from tariff-free borders.

For example, Maseca, a major producer of corn flour tortillas, saw its shares rise 5.3% for the day on the Mexico City exchange.

“Corn sells for considerably less in the U.S. than in Mexico,” said Josephine Jimenez, manager of the Montgomery Emerging Markets mutual fund in San Francisco.

So if the trade pact allows Maseca to buy cheaper corn, the company’s profit margin should expand.

Among the biggest and best-known Mexican companies, however, stock action Wednesday was nil--even though many of those giants have plenty to gain from free trade over time.

Shares of the Mexican phone monopoly, Telmex, closed off 37.5 cents to $47 on the New York Stock Exchange.

Rod Linafelter, a money manager at Denver-based Berger Associates mutual funds, noted that any boost in business activity between the United States and Mexico is virtually certain to mean more phone calls and faxes between the two countries, benefiting Telmex. But those benefits are long-term in nature, he said, so investors see no urgent need to rush into Telmex.

Likewise, any trade-related payoffs for such Mexican companies as construction giant Empresas ICA and glass maker Vitro will take time.

And some publicly traded Mexican companies are certain to be hurt by freer trade, experts warn. The companies most at risk may be producers of consumer goods, whose prices could be undercut by bigger American companies if tariffs fall away.

For example, Linafelter worries that Kimberly Clark de Mexico, a dominant paper goods producer, might be hurt by increased competition. Some Mexican retailers also could be at risk.

Indeed, if you’re searching for beneficiaries of free trade, many money managers advise looking first on the American side of the border: Consumer products makers, machinery producers, truckers, high-technology firms and a host of other American businesses could experience a mini-boom if the trade pact becomes reality.

Longer term, though, the net effect of free trade should be to draw much more global capital to Mexican companies that are low-cost operators, and thus survivors, Fane says. And that should be a boon to the still-fledgling Mexican stock market.

With the Mexican market still cheap by world standards--the average Mexican stock sells for 12 times estimated 1992 earnings per share, versus a ratio of 18 for the average U.S. stock--Fane believes it’s only a matter of time before another bull market emerges.

How Mexican Stocks Fared

The Mexican stock market showed little response to the free trade pact announcement. Traders said most investors have already factored the agreement’s potential effects into their strategies. How some Mexican stocks traded in the U.S. fared:

52-week Wed. close Stock/market high/low and change Empresas ICA (NYSE) $22 3/4-$15 $18 1/2, + 1/4 Telmex (NYSE) 60 1/8-29 1/2 47, - 3/8 Telmex (NASDAQ) 3 25/32-1 1/4 2 11/32, -- Trans Maritima Mex (NYSE) 9 1/8-6 3/4 7 7/8, -- Tubos de Acero (Amex) 11 1/4-4 3/4 5 5/8, - 1/8 Vitro (NYSE) 32 1/4-15 1/4 16 7/8, - 3/8