Why 2014 could be Mexico's year

  @FortuneMagazine December 19, 2013: 7:38 AM ET
INV13 mexico
(Fortune)

Last year at this time investors were rushing into Mexico. A new President with an ambitious reform to-do list had just taken office. And the largest IPO in Mexican history, the $4 billion offering of Spanish bank Santander's Mexican division, had just taken place. To listen to the government, 2013 would elevate Mexico to an economic powerhouse. But the new administration pinched pennies and GDP growth slowed to just 1%, a fraction of 2013 expectations. By December, stocks were down 4% and many investors seemed to give up hope. "They felt Mexico's moment was slipping," says David M. Darst, chief investment strategist for Morgan Stanley Wealth Management, who spent much of the past two years on the ground in Mexico studying the country's prospects.

Now many are singing the same refrain they sang last year: 2014 will be the market fiesta that 2013 wasn't. Those who bet on Mexico last year are rightfully wary of being fooled again, but there's a good case to be made that 2013's optimism wasn't wrong, just premature. Recent legislative reforms of the nation's tax and education systems -- as well as telecom and energy infrastructures (more on those in a bit) -- are beginning to give Mexico's sprawling middle class a boost. That, says legendary investor Mark Mobius, executive chairman of Templeton Emerging Markets Group, is fueling "explosive growth in demand" for consumer products. And Mobius isn't one to mince words: "We see a great future for Mexico and want to be part of that future," he tells Fortune.

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