Waking up from war rally: attention turns to home after strong move on Iraq sends Wall Street soaring. (Market Moves).

It's been a long month since my last column, and one that will surely find its niche in history. As I write, the Iraqi ambassador to the United Nations is effectively surrendering his country to the U.S.-led coalition, and Saddam Hussein's regime has crumbled.

Looking back, market reaction to the start of hostilities in Iraq was impressive in its confidence. The news was welcomed on trading floors everywhere. Many investors were selling while the war was looming, then buying on the expectation that it would be brief. The Dow shot up over 1,400 points in 10 days (March 11-21) in what some described as a "patriotic rally," though in this case, it felt more like an enormous collective letting-off of steam.

TIME TO LOOK INWARD 

The month has been guided by progress from the battlefront, but as it waned, investors' sights have refocused closer to home, where there is also room for rebuilding. The second week of April has seen a batch of gloomy trading reports from U.S. companies, while gas prices are still too high and consumer confidence too low. The end of the war should begin to solve the last two problems, but there will not be any sustained growth until the war is truly finished.

Although there may be trouble ahead, the Mexican market has danced through this month. A player could have thrown a dart at the Mexican IPC main index list and probably hit a winning stock. Nearly all stocks have risen, while the leading index has surged from below 5,800 points to as high as 6,250.

There has been rekindled interest in front-line stocks, especially those that have been undervalued or oversold in recent months, such as blue chips Televisa and Walmex.

The strengthening of the peso has also helped renew interest in local equities, as evidenced by a noticeable leap in volume on the stock market. Foreign investors are also listening to suggestions from Moody's Investors Service that it may bump Mexico's sovereign-debt rating up another notch to Baa1 from Baa2.

TELECOM, CONSTRUCTION STRENGTH

Looking across the sectors, there have been strong movements in telecom stocks (basically all those under the Telmex umbrella), which have weathered the telecom storm better than nearly all their foreign peers. Construction remains another strong sector. A quick look at the leading companies' prices in the month to April 9 tells the story: Corporacion Geo's stock has risen 26% in dollar terms, Consorcio Ara, 17.2% and Empresas ICA, 33.9%, following the award of the lucrative El Cajon hydro-electric project.

However, where these sectors have shown significant gains, there are a couple of areas where the future is looking a little less bright. Mining stocks (Penoles, Grupo Mexico) have been among the worst performing as metal prices fall again. The worry for these firms, both with burdensome debt problems, is that they may start to slide again should we enter an enduring peace.

The auto industry is also misfiring. Exports of vehicles to the United States in the first quarter of this year were down by 9%, due to high gas prices and low consumer confidence.

So where next? The rally appears to be underway, with the stock market still far from the 6,450 points it reached in January, and a country mile from the 8,000-point level it approached in the second quarter of 2002. Recent comments from both Finance Secretary Francisco Gil Diaz and Banco de Mexico Gov. Guillermo Ortiz have suggested that the ambitious goals for GDP growth and low inflation are already under threat, and the government may backtrack on both these figures soon.

There is a tough climb ahead before we can talk genuinely about a recovery, and it's unlikely to be quick.

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Index                   Mar. 31 2003        NOMINAL          REAL (1)
                                      Monthly   Accrued   Monthly
                            INDEX

Stock Market
IPC                      5,914.03       -0.2%     -3.5%     -0.7%
INMEX                      323.01       -0.6%     -3.3%     -1.1%

Mutual Funds
Equity                   2,000.75        0.9%     -1.5%      0.4%
Debt for Individuals     3,984.82        0.6%      1.9%      0.2%
Debt for Corporations    1,559.33        0.8%      1.8%      0.3%

Economic Activity
Industrial               2,404.85        0.2%     -4.6%     -0.3%
Retail                   8,811.90       -3.0%     -4.1%     -3.5%
Non-Financial Services   5,484.08        5.6%     -6.1%      5.1%
Insurance and Banks      3,601.01       -1.6%      7.0%     -2.1%
Broker Firms               414.03        0.0%      0.0%     -0.5%
Financial Groups           258.61       -0.8%     -0.1%     -1.3%

Sector
Mining                   3,896.94       -6.4%     -0.6%     -6.8%
Industrials              2,284.24       -1.0%     -8.2%     -1.5%
Construction             9,291.97       -1.7%     -9.5%     -2.2%
Retail                  11,890.96        3.7%      5.4%      3.2%
Communications and      23,806.24       -1.1%     -3.4%     -1.6%
 Transportation
Services                   853.79       -1.1%      2.1%     -1.6%
Holding Companies        2,052.33       -0.4%     -6.1%     -0.9%

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


Stock Market
IPC                       -4.6%     -2.2%     -7.6%
INMEX                     -4.4%      1.8%     -7.4%

Mutual Funds
Equity                    -2.7%      3.4%     -5.7%
Debt for Individuals       0.7%      3.1%     -2.4%
Debt for Corporations      0.7%      3.2%     -2.5%

Economic Activity
Industrial                -5.7%      2.7%     -8.7%
Retail                    -5.2%     -0.6%     -8.1%
Non-Financial Services    -7.2%      8.3%    -10.1%
Insurance and Banks        5.6%      0.8%      2.4%
Broker Firms              -1.2%      2.5%     -4.2%
Financial Groups          -1.3%      1.6%     -4.3%

Sector
Mining                    -1.7%     -4.1%     -4.8%
Industrials               -9.3%      1.4%    -12.1%
Construction             -10.5%      0.7%    -13.3%
Retail                     4.1%      6.2%      0.9%
Communications and        -4.6%      1.3%     -7.5%
 Transportation
Services                   0.9%      1.4%     -2.2%
Holding Companies         -7.2%      2.0%    -10.1%

(1)March inflation: 0.63% January-March inflation: 1.32%

(2)March depreciation: -2.04% January-March depreciation: 3.62%

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