By David Randall
NEW YORK (Reuters) - Mutual fund managers are shifting their portfolios from Mexican exporters and manufacturers into companies that focus on penny-pinching consumers as fears over President Donald Trump's trade and immigration policies threaten to disrupt relations between the two countries.
Amid the uncertainty, Mexican consumers are expected to tighten their belts and boost their savings, fund managers say. An index of Mexican consumer confidence slid in January to its lowest on record amid rising tensions.
The portfolio changes from firms including T. Rowe Price, Federated Investors and Fidelity come amid uncertainty over the fate of the North American Free Trade Agreement and a possible tax on goods produced in Mexico as well as new U.S. immigration guidelines.
"We expect most of (consumer income) to go to staples and savings until confidence returns," said Chuck Knudsen, a portfolio specialist for emerging markets at T. Rowe Price.
Knudsen said his team is shifting its portfolios into stocks such as Wal Mart de Mexico, the Mexican division of U.S. retailer Wal-Mart Stores Inc (NYSE:WMT), and banking company Grupo Financiero Santander (MC:SAN) Mexico.
"We think these companies are well positioned to grow going into a period where we expect a sluggish economy," Knudsen said.
Mexico's stock market tumbled 8.5 percent in the week following Trump's unexpected victory. The peso hit a record low against the dollar just before his January inauguration, sparking fears of a spike in inflation.
Mexico ships 80 percent of its exports to the United States, and about half of Mexico's foreign direct investment has come from its northern neighbor over the past two decades.
Trump has said he wants to impose a 20 percent tax on Mexican imports to pay for construction of a border wall between the two countries.
The peso has recently strengthened by 8 percent and Mexican equities have jumped 2.7 percent on hopes that Trump will not follow through. Stocks remain 1.8 percent below their level before Trump's November victory.
Senior U.S. envoys met with Mexican officials in Mexico on Wednesday, a day after the United States issued the new immigration guidelines.
Geoffrey Pazzanese, a senior portfolio manager at Federated Investors, said Mexican stocks still look expensive given falling profitability at a time when interest rates will likely rise. He is underweight on Mexican stocks overall.
But Pazzanese remained bullish on domestic-oriented companies such as restaurant operator Alsea, whose franchise portfolio includes Domino's Pizza, Burger King and Starbucks (NASDAQ:SBUX).
Consumer spending will likely be bolstered, Pazzanese added, by a spike in remittances sent to the country by Mexicans living aboard, which jumped 6.2 percent to $2.3 billion in December from the same time a year earlier.
He is also bullish on airport operator Grupo Aeroportuario del Sureste. Its Cancun airport will likely remain popular with U.S. tourists looking to take advantage of the cheaper peso, he said.