$316Bn for Infrastructure: Complete Privatization Next?
This much is known: Two weeks ago, President Pena unveiled a “transformational” six-year plan to invest $316bn in thousands of miles of new roads, railways, telecoms infrastructure and overhauling ports enroute to boosting competitiveness for exporters and economic growth . . . The move fits right in with the reforms he promised when he came into office last December. This is significant and — I believe — could be revealing of noteworthy democratic and economic reforms to come . . . In The Economist (May 25): Later this year the government hopes to push through radical reforms in the state-controlled energy sector. These could prove to be a spur for investment and productivity. There is likely to be a fierce political battle to pass them. Gray Newman, an economist at Morgan Stanley in New York, says that complacency about the economy could be a bad thing on the eve of such ambitious reforms. In fact, he says, “Some downward revisions in GDP growth could be exactly what the doctor ordered.”
What does all this mean for Empresas ICA, S.A.B. de C.V.? The special congressional sessions should certainly provide additional insight. We're in that "waiting game" period now. That was clearly evidenced by ICA price activity on Monday . . . Is the equity experiencing a studied accumulation phase? The next few weeks will be telling . . . Very telling: Again, based on yesterday's response to financials and the CC, my sentiment remains very long and very strong.
Mexican politics leaves me optimistic that a comprehensive infrastructure package will pass. The three major parties are getting along fairly well and have cooperated to pass multiple politically sensitive items. An infrastructure package is (partly) pork. Mexico's public debt is low and its economy, though now in recession, is in solid fundamental shape.
For ICA one risk is that USD spikes v. MXN due to divergent rate expectations, driving debt expense upward with no revenue offset. I think this risk is minor compared to the opportunity.