E Bull In A China Bourse

Down Mexico Way

*It has become standard here in Britain to favor the FTSE 100 over broader UK indexes, because of its multinational company focus. Broader UK indexes depend on consumer spending which is down sharply. The same factors may hurt Mexico indexes, because while growth looks good so far, domestic demand is deteriorating. Consumer spending is supposedly heading for a slump.

Our Mexican stock list is heavy on MNCs like Cemex (CX) and Mexichem (MXCHF) although Bimbo, a good performer lately, is a possible victim of a real consumer crisis, if Mexicans are forced to stop eating bread and cake, unlikely. I use Maru Pichardo, the manager of our Mexican Equity and Income Fund (MXE), as a sounding board for our stock picks and I think she is as wary of depending on the consumer sector as the market overall.

Wage growth and production and mining for export in Mexico are down because among other things the peso is much stronger. While housing is slumping, the kind of office, hotel, factory, school, and mall buildings being done by our Fibra Uno (FBASF), is aimed at a more international clientele.

Moreover the consumer spending slump may not even exist. In Q1 this year consumption grew 2.8% according to Dimitra DeFotis in Barrons' Blog, although growth is decelerating. FBASF reports July 21 on its Q2.

She also notes a global sector performance advantage south of the border for Alsea which runs Mexican subs of Starbucks, Burger King, and the like. Its shares are up 44% OTC in the US, she says. So the picture in Mexico is not a mirror-image of the one in the UK which has much poorer consumer numbers, and also a housing market slump.

Another similarity between Britain and Mexico is that both countries saw large scale banking fraud, with the latest Mexican scandal at Casa de Bolsa Banorte, the country's 4th largest brokerage, amounting to ~1.6 bn pesos. While British fraud cost much more than the equivalent of $88 mn, Mexico is a poorer country. The two countries also fail to house the poor adequately and both suffer from fatal errors with bad building systems. Again, being poorer, the fatalities in Mexico are in low-rise shanty towns rather than skyscraper council flat.

Our shares are MXCHF, GBMBF, CX (on which more below), all multinational corporations out of Mexico, plus REIT FBCASF, and CEF MXE.

Pharma

*Beleagured TEVA suffered a first-round loss in a Wilmington (DE) US court where a jury found that the Israeli generics firm had willfully violated a patent for Coreg,n a heart failure drug, from GlaxoSmithKline (GSK) before the patent expired in 2015. TEVA was ordered to pay $235 mn to GSK, after its lawyers failed to convince the panel that the patent was invalid. The sum includes lost profits and royalties the Israeli generics maker has to pay GSK of Britain. While the US FDA allowed the generic to be sold starting in 2007, it included a carve out for chronic heart failure which was to be a GSK exclusive. However starting in 2011 Teva added that use to its label.Teva will appeal.

*Eyel Dayesh, former TEVA CFO, has gone to run credit card company Isracard.

*GSK also was boosted by results from its Zoster A48  shingles vaccine phase III trials in people over 50 years old which were presented at a Center for Disease Congtrol conference yesterday. The revaccination with Shingrix showed similar immune response to earlier jabs with rival products and the side effects were lower.

The analysis group Evaluate predicts that the Shingrix jab on which US and European approvals are pending, will produce sales of as much as $1.17 bn for GSK by 2022. It is a clear winner against Merck's Zostavax, according to analysts because the protection lasts longer. Shingles is caused by remnants of chicken pox infection popping up years later among oldsters, and is painful and debilitating. The successful trial was significant because protection increased in people vaccinated earlier with Zostavax, a key finding.

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