The country was one of the first in South East Asia to initiate privatisation of state-owned industries. It is the world's biggest producer of computer disk drives and boasts important steel and rubber industries, as well as being the largest palm oil producer and a significant exporter of oil and gas, and accounts for nearly half of world timber exports. But skilled labour is scarce, and high interest rates deter private investors. The government has also kept large shareholdings in privatised industries such as Tenaga and Telekom , empowering it to veto board decisions and block hostile takeovers. Many analysts believe that this sort of intervention needs to be kept in check if the country is to attract further investment.
None the less, foreign interest in the Kuala Lumpur Stock Exchange remains buoyant. Approximately 20 per cent of the share capitalisation is held by foreign investors. Around 500 companies are listed, the largest of which include Telekom, Maybank, and Proton, the motor manufacturer whose cars are now a common sight on British roads. Property is one of the most dynamic sectors: Kuala Lumpur's twin Petronas towers, currently the tallest buildings in the world, reflect prime minister Dr Mahatir's determination for to be in the vanguard of the Asian tiger economies.
The market showed a lacklustre 11 per cent sterling return over the 12 months, however. The n ringgit is closely tied to the dollar, and with US interest rates likely to increase, the outlook in 1997 could be even less promising.
In December, 1994, Ernesto Zedillo's new administration was plunged into crisis by the devaluation of the Mexican peso. His austerity plan (cutting spending and raising taxes) failed to prevent a massive slide in stock market value at the beginning of 1995. The crisis, known as the "tequila effect" undermined international confidence throughout the Latin American region and its effects were felt in countries as diverse as Poland and Thailand, as foreign investors re-examined their attitude to risk and to emerging markets in general.
A severe recession in Mexico followed the crisis, with a sharp drop in gross domestic product and in the living standards of its 94 million population. The country is still suffering from the aftermath, but thanks to the backing of the Clinton administration in Washington and from the international financial community in general, it is again on the road to recovery. News that the economy grew by more than 5 per cent in 1996 surprised many economists. Inflation fell from 52 to 28 per cent, and the early repayment of a pounds 17bn bridging loan from the US has bolstered fund managers' confidence.
There are 186 domestic stocks listed on the Mexico stock exchange and many companies got off to a strong start this year, helped by declining interest rates and a peso which continues to be competitive internationally. Privatisation continues apace and, as of February, Mexicans can for the first time sign up with private pension funds. This should help to diminish the country's reliance on foreign capital and will allow many workers to participate in financial markets for the first time. In addition, Mexico's bruised media industry can expect more than $70m in advertising revenues this year as the private pensions providers battle it out for business.
Private stock market investment overall could top $18bn in 1997. Paul Luke, Head of Emerging Markets at Deutsche Morgan Grenfell, expects a 20 per cent rise in the Mexican market between now and the end of the year. "With the peso a reasonably competitive currency, in the near term we expect companies which have export earnings to do better," he says. Thanks to holiday resorts such as Acapulco on the Pacific and the unspoilt beaches of the Yucatan peninsula, tourism is the largest employment sector in Mexico. Accordingly, Mr Luke has high hopes for Grupo Posadas, the hotel company.
The 48-year-old monopoly of Telefonos de Mexico (Telmex) has recently ended, with the telecoms market being opened up to competition from the US, but the company should retain a substantial market share, Mr Luke believes. Telecoms are an important sector - 6 million Mexicans are estimated to work in the US and most have families at home. Peak user time is on Sundays, when families in Mexico's villages queue outside phone booths to call absent sons, daughters and husbands
Performance Statistics: Datastream. Numerous regional unit and investment trusts have exposure to and Mexico, although HSBC's Singapore and n Growth fund is one of the few country-specific vehicles.