Nov-23-09 Harbor Alert: Fitch Ratings Downgrades Mexico

Today, Fitch Ratings downgraded Mexican Credit Risk Rating from BBB+ with negative perspective to BBB con stable perspective. The Agency stated that global financial crisis and falling oil production accentuated weaknesses in the Country’s fiscal profile. This was enough reason to place Mexico in the second lowest investment grade level. The downgrade was the first by Fitch since it gave Mexico an initial rating of BB in 1995.

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HARBOR’s Perspective: Despite this recent credit risk downgrade, Mexico still maintains an investment rating and would need 2 more reductions to lose this status. It is noteworthy to recall that investors had been discounting the possibility of a lower rating since April.  Although a BBB+ rating would have boosted the market with optimism, Fitch decision will not modify the peso fundamentals in the short term. The rise in net dollar inflow through exports and government bonds has been almost constant since March. This situation is being reflected in higher international reserves assets. In fact, from August to date, international reserve assets have climbed 7,605 million dollars reaching 80,874 mdls. We estimate that in the short term, the peso could still benefit from a low risk aversion environment and the fact that investors are still looking for assets that might generate higher yields.

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