How a bandit broke Mexico Fear of new Zapatista onslaught ravages peso and emerging markets funds

AN ALLEGEDLY charismatic, pipe-smoking intellectual operating under the pseudonym of "Subcommandante Marcos" has singlehandedly wiped millions of pounds off the value of unit and investment trusts owning shares in Mexican companies.

Despite a hastily arranged propaganda offensive by the Mexican finance minister, Guillermo Ortiz Martinez, the peso fell on Friday from 5.35 to 6 against the US dollar. That belied Mr Martinez's claim on Thursday that market reaction to the fall in the peso had been exaggerated and that the currency was now undervalued.

Although commentators agree that a raging trade deficit forced the Mexican president, Ernesto Zedillo, to announce the recent devaluation and emergency pact with the country's trade unions, the immediate trigger was the threat of revolution led by Marcos's Zapatista National Liberation Army (ZNLA).

The ZNLA killed 145 people early last year. Although the Mexican army has so far contained the guerrillas, they were reportedly threatening to strike again in their fight for democratic rights.

The impact on London and Wall Street has been severe. In London, the biggest Mexico-related investment trust, the £490m Templeton Emerging Markets, is down from 164p to 115p. Fleming Emerging Markets, with assets of £181m, has fallen from 210p to 156p. And Foreign & Colonial's Latin American Investment Trust, with 31 per cent of its £150m in central America, has tumbled from 201p to 119p. "If you look at the long term, I think that this will prove to be an excellent buying opportunity," insist ed Emily McLaughlin, head of Latin American Equity at Foreign & Colonial. However, some investors think Mexico will be too dangerous for some time to come. The Kleinwort Emerging Markets trust is one of the few not to be invested in Mexico. Its director of Latin American equities, Roger Palmer, said: "Foreign fund managers are angry and afraid, because some will lose their jobs over this. They think Mexico is a buying opportunity because the value of their investments has fallen by 40 per cent in their own currency. But they forget that the Mexican stock market is up 1 per cent in peso terms since Christmas. It's still expensive. There is better value in Argentina or Brazil."

The unluckiest British company caught in the crisis, drinks group Allied Domecq, bought Pedro Domecq last year. Peso devaluation is expected to cost the company £20m this year.

The United States is braced for a surge in illegal migrants from Mexico, where wages relative to the US have fallen by 30 per cent overnight.