Stock Market in Tizzy, Economy in Shambles - Is this Possible?

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  • Mr Market
  • 18-May-2015

At first thought, this idea of stock market's performance being divorced from that of the economy's performance sounds counter intuitive, but it isn't so. Mexico is a classic example of this - Mexico's stock market has risen by 200% (in $ terms) within a decade around 2000-2010 making it one of the hottest stock markets in the world while it's economy has grown at a Hindu growth rate of 3% even during the boom period of 2003 to 2007.

This is possible as the companies listed on Mexican the stock exchange derive 50% of their revenues from offshore operations. Additionally, the sectors that drive the local economy are not listed on the stock exchange - manufacturing exports and oil and gas. Manufacturing exports primarily constitutes car exports to US companies like Ford, Chrysler which is the chief driver of the domestic market. This establishes a high degree of dependence of Mexican economic growth on that of America’s growth.

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