Mexican Stocks Hit Record on Rating

The Mexican stock market zoomed to a record high Tuesday after credit-rating firm Standard & Poor’s lifted the country’s debt rating.

The main IPC share index jumped 243.40 points, or 1.9%, to 13,340.52, bringing its year-to-date gain to 3.3%. The index is off to a strong start after soaring 44% in 2003 and 47% last year.

On Monday, Mexico’s foreign debt rating was raised one level by Standard & Poor’s, which cited the government’s efforts to reduce dependency on international capital markets by increasing debt sales to domestic investors.

S&P; lifted Mexico’s rating from BBB-minus to BBB, the second-lowest investment-grade rating and on par with countries such as South Africa and Tunisia. S&P; boosted the rating less than a month after Moody’s Investors Service raised its rating of Mexican foreign debt to Baa1, its third-lowest investment-grade rating.

“Growing domestic debt markets are allowing Mexico to sidestep one of the historic weaknesses of most Latin American sovereigns, namely the inability to raise fixed-rate, long-term debt in local currency,” S&P; said in a statement.

Mexico’s economic crisis in 1994 and 1995, which triggered a sharp devaluation of the peso, stemmed in part from a dependency on foreign capital, including from U.S. investors.

Mexico reduced its net foreign debt to 12.7% of gross domestic product in 2004, from 32.4% in 1995, by replacing more of the debt with peso-denominated securities.

Private pension funds, created by the Mexican government in 1997, have become a source of demand for government bonds. The funds have $42 billion of workers’ assets to invest.

In its ratings announcement, S&P; also cited declining Mexican budget deficits, foreign reserves of more than $60 billion and an annual inflation rate under 6% for the last four years.

The Mexican stock market has benefited in the last two years as the economy has strengthened, in part thanks to renewed heavy investment by U.S. companies in Mexican manufacturing facilities.

Higher credit ratings imply an improved level of economic stability, generating increased interest from global investors.