Getting a second wind: Bolsa may slow for profit-taking breather as record-breaking run continues.

Mexican stocks have continued their unfettered sprint for 10,000 points in recent weeks spurred on by the cheer of fourth-quarter results and some unexpected jostling for position by some international runners. Although a bout of profit-taking is now long overdue, stocks have continued to glide upward in anticipation of a recovering U.S. economy and its pacesetting effect south of the border.

Locally, the news has been dominated by some large corporate plays. The largest, and most ground-shaking, was Spanish bank BBVA's early February offer to buy the remaining 40.6% of Mexican subsidiary Bancomer that it didn't already own. The 15% premium offered to shareholders saw daily market volume boosted to well above 200 million shares for most of that week, resulting in renewed highs for the IPC and a flurry of activity in the banking sector as a whole. BBVA's bet on the Mexican economy is seen as a vote of confidence from one of the world's big players, and it resulted in a broad market rally.

A second big buyout took place in late January. No. 2 cement producer Holcim Apasco received a US$10.20 per share bid from its majority holder, Swiss cement firm Holcim. The 17% premium was snapped up by shareholders and outsiders, leading to increased activity in the cement and construction sector.

There are a number of similarities between the two deals. For starters, both the buying companies already held a majority stake in the Mexican company. Both companies are well positioned in their sector with solid earnings and, most noticeably, both buyers are European. The impulse behind these purchases clearly was the strong euro, making both deals a real bargain for the buyers.

CAUSE FOR PAUSE

The bad news for Mexican markets is that both Bancomer and Holcim Apasco are due to be delisted following the buyouts, an action which has made local investors jittery. Bancomer stock, for example, has been worth approximately 10% of market volume over the last year, while Apasco was a consistent second-line performer.

[ILLUSTRATION OMITTED]

The removal of these two stocks is bound to remove liquidity from the market, while prices in their respected sectors are likely to be inflated. Banorte is now the only viable option left in the banking sector, while Cemex and Grupos Cementos Chihuahua stand as the only major names left in the cement sector. These three companies posted strong gains following the news.

GOSSIP IN RETAIL SECTOR

Where there is no fire, there has been smoke, and persistent rumors of a Soriana-Gigante merger just won't go away. The potential merger would see great synergy between the two firms, both large local retailers. While Soriana is a dominant force in the north of the country and has not suffered as badly as Comercial Mexicana since the arrival of Wal-Mart, Gigante has really been struggling to compete.

The move would benefit Soriana by giving it an immediate presence in markets further south, especially Mexico City where it currently has no penetration, while Gigante would effectively be rescued by the operating dynamics offered by Soriana.

In other activity, the market continues to be driven by fourth-quarter (and thus full-year) results. The two market darlings, America Movil and Walmex, continued to impress, beating street expectations, and hitting new all-time highs as a result. However, as markets tend to move ahead of the economy, there is likely to be very little more news that will surprise to the upside.

Regardless, on Feb. 16, the Bolsa broke the psychologically important 10,000-point barrier, but don't be surprised at a profit-taking break in the short term.

[GRAPHIC OMITTED]

[GRAPHIC OMITTED]

Information provided by AMCHAM economist Jose Antonio Hernandez Balbuena

Index                            31 January       NOMINAL
                                             Monthly  Accrued

Stock Market                      INDEX
IPC                               9,428.77    7.2%     7.2%
INMEX                               526.79    7.4%     7.4%

Mutual Funds
Equity                            2,816.96    5.7%     5.7%
Debt for Individuals              4,142.82    0.5%     0.5%
Debt for Corporations             1,620.26    0.5%     0.5%

Economic Activity
Industrial                        3,777.84   11.7%    11.7%
Retail                           12,268.59    6.5%     6.5%
Non-Financial Services            6,569.03    3.3%     3.3%
Insurance and Banks               4,244.04    2.3%     2.3%
Broker Firms                        414.03    0.0%     0.0%
Financial Groups                    349.33    4.4%     4.4%

Sector
Mining                           10,942.00    5.3%     5.3%
Industrials                       3,135.77    6.4%     6.4%
Construction                     16,328.84   11.6%    10.9%
Retail                           16,092.64    5.0%     5.0%
Communications & Transportation  38,869.00    5.9%     5.9%
Services                          1,183.32    7.3%     7.3%
Holding Companies                 3,511.95    9.8%     9.8%

Index                                REAL (1)        DOLLARS (2)
                                 Monthly  Accrued  Monthly  Accrued

Stock Market
IPC                               6.5%     6.5%    10.4%    10.4%
INMEX                             6.7%     6.7%    10.5%    10.5%

Mutual Funds
Equity                            5.0%     5.0%     8.8%     8.8%
Debt for Individuals             -0.1%    -0.1%     3.5%     3.5%
Debt for Corporations            -0.1%    -0.1%     3.5%     3.5%

Economic Activity
Industrial                       11.0%    11.0%    14.9%    14.9%
Retail                            5.8%     5.8%     9.6%     9.6%
Non-Financial Service             2.7%     2.7%s    6.4%     6.4%
Insurance and Banks               1.7%     1.7%     5.4%     5.4%
Broker Firms                     -0.6%    -0.6%     3.0%     3.0%
Financial Groups                  3.8%     3.8%     7.5%     7.5%

Sector
Mining                            4.7%     4.7%     8.4%     8.4%
Industrials                       5.7%     5.7%     9.5%     9.5%
Construction                     10.9%    10.9%    14.9%    14.9%
Retail                            4.4%     4.4%     8.1%     8.1%
Communications & Transportation   5.2%     5.2%     9.0%     9.0%
Services                          6.6%     6.6%    10.4%    10.4%
Holding Companies                 9.1%     9.1%    13.1%    13.1%

(1) January inflation: 0.62%
(2) December depreciation:-2.95%

Gianluca Baratti works as a stock market analyst at Finamex Casa de Bolsa.

[ILLUSTRATION OMITTED]

Commentary by Gianluca Baratti