Mexico Stocks, Peso Soar on Post-Election Hopes

Markets soared Monday on expectations that Vicente Fox, Mexico’s next president, will staunchly protect and expand the nation’s progress on free trade and open-market reforms.

But the underlying impetus for the 6.1% surge in stocks and 2.8% jump in the peso was Mexico’s surprising step toward achieving First World status by completing an open election whose decisive results were accepted by the political machine that was ousted from power after 71 years.

The Monday morning calm that followed Sunday’s electoral earthquake eliminated the uncertainty that was hanging over Mexican markets as the election approached.

Although Mexico has made great strides in freeing its economy in the last decade, the openness of its political process--dominated for decades by the Institutional Revolutionary Party--has been shrouded in doubts, which Sunday’s results went a long way to dispel.

“Political progress is catching up with economic progress,” said Alberto Fernandez Garza, president of Coparmex, an association of some 35,000 business leaders. “We are sending a strong signal to the outside world that we are a serious country and not a banana republic.”

With an orderly transition from President Ernesto Zedillo to a Fox administration probable, analysts said investors are demonstrating confidence that the political climate will remain conducive to economic growth and foreign investment--something that former businessman Fox courted aggressively during his tenure as governor of Guanajuato state.

Chances are slim that Fox will stray much from the open-market orthodoxy laid down by Zedillo, which is good news to Wall Street.

“The main lines of economic policy will remain the same,” said Hermann von Bertrab, head of the Mexican Investment Board, which is charged with attracting foreign investment.

That belief helped lift Mexico’s main stock index 6.1% on Monday to close at 7,373. The peso, after weakening in recent weeks as nervous Mexicans bought dollars to hedge against possible election disturbances, gained 26 centavos against the dollar, or 2.8%, to close at 9.57.

Other Latin American stock exchanges rode the wave, with Argentina’s main index up 3.4%, and Brazil up 2.2%. Bonds generally gained as well.

Like many inside and outside Mexico, investors were surprised by Fox’s victory margin of seven percentage points over PRI candidate Francisco Labastida. Fox ran as the National Action Party candidate.

“It’s a stunning result. But what’s important to the market is that it was a clean, untainted election whose results have been publicly accepted by Zedillo and the public,” said Geoffrey Dennis, equity strategist at Salomon Smith Barney in New York.

Eduardo Cepeda, head of J.P. Morgan’s Mexico operation here, said: “We believe the process merits some praise. We believe the election was conducted in a very mature, civilized, First World kind of way.”

Also comforting to investors is that Fox is sending signals he wants to hire some of the U.S.-educated economic technocrats who helped Zedillo engineer Mexico’s recovery from the economic trauma of the 1994 peso devaluation.

Fox is said to be considering three PRI stalwarts as his finance minister: Pedro Aspe, who held that post under former President Carlos Salinas; former Deputy Central Bank Gov. Francisco Gil; and current Energy Minister Luis Tellez.

Fox is known to favor local and regional industrial development to complement Mexico’s abundance of export-related industries as embodied by the booming maquiladoras, the foreign-owned plants that assemble products here for shipment and sale across the U.S. border.

Fox, a former top executive at Coca-Cola’s Mexico operation, aggressively courted investment for his home state of Guanajuato and succeeded in attracting major new investment from General Motors, many of its suppliers and numerous other companies, von Bertrab said.

In one of his first speeches as president-elect, Fox said Monday that he wants the nation’s economy to grow 7% annually, versus this year’s 5%, to create more jobs, and he knows that foreign investment is vital to achieve that goal.

Like his predecessors, Fox is said to be leery of privatizing Petroleos Mexicanos, the state-owned petroleum monopoly. But he will consider the privatization of petrochemicals to reduce imports, and of electricity generation to increase efficiency and power capacity, predicted Claudio X. Gonzalez, chairman of Kimberly-Clark of Mexico and head of Mexico’s powerful Business Coordinating Council, an umbrella group representing Mexico’s private sector.

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Times staff writer Ken Ellingwood contributed to this report.

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LONG COATTAILS

Mexico’s longtime ruling party lost its dominance in the federal Congress. A1

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The Fox Effect in Mexico

Mexico’s main share index, the IPC, rocketed 6.1% on Monday after conservative party leader Vicente Fox was elected president by a wide margin. The peso also strengthened. Weekly closes and latest for the IPC:

Monday: 7,373.37, up 425.04

Source: Bloomberg News