Can you say "unintended consequences"? Can you say "Weak yen produces strong Mexican peso"? Or how about "I'd like a piece of that"?
The weak-yen program of the Bank of Japan and Prime Minister Shinzo Abe is designed to send Japanese traders and investors into overseas assets. That investment flow would help weaken the yen, increase inflation in Japan and jump-start Japanese exports.
The assumption has been that the U.S. would be a major recipient of those cash flows.
I don't know that I've heard anyone say "Mexico," but it looks like that country has become the favorite of individual Japanese investors moving money overseas. Since the beginning of 2013, Japanese mutual funds have added 115 billion yen to their peso investments. That has outpaced flows into other popular currencies such as the Polish zloty and the Turkish lira. (Who knew?) In 2013 to date, issuance of peso-denominated "uri dashi" bonds -- bonds in foreign currencies sold to Japanese retail investors -- trails only issuance of U.S.-dollar-denominated bonds, at 56 issues worth 1.2 trillion yen.
The logic of Japanese cash flows is pretty simple. If you like the growth story for the U.S. economy, you like the prospects for the Mexican economy even more. The U.S. energy boom has spilled over the border to give Mexican manufacturers falling energy costs, which are adding to profit margins even as sales grow. And the peso has two advantages that make it especially attractive to Japanese investors: First, it's not the U.S. dollar, so buying pesos gives a Japanese investor some needed diversification, and second, the Banco de Mexico has said very clearly that it's done cutting interest rates so that investors can expect gains in the peso.
Want to buy into the story that Japanese investors find so attractive (and that they make more attractive by backing it with their cash)? Try Cemex (CX), the big Mexican cement maker and the biggest maker of ready-mix concrete in the world.
Cemex is doubly leveraged to the U.S. energy boom. First, the biggest cost for any cement maker is fuel to run its kilns, so cheap natural gas from the U.S. goes right to the company's bottom line. Second, Cemex produces aggregates used in fracking and specialty cements used in the construction of oil and natural gas wells.
The recovery in the U.S. housing industry doesn't hurt either.
Cemex's latest vote of confidence in its U.S. market and in its own growth is the May 30 announcement that the company will expand its Odessa, Texas, plant by 62%. (Cement is a low-value, high-volume product, so most cement is consumed within 200 miles of the factory.)
In 2012, Cemex got 20% of its sales from the U.S. and 22% from Mexico, where the company earns an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 35%.
