A Tale of Two Countries

SANTIAGO – Barely two years ago, Brazil’s rapid economic growth and expanding middle class made it the darling of financial markets, whereas Mexico was better known for drug gangs and violence. With slow growth and stalled economic reforms, financial markets were about to write off Mexico as a lost cause.

How quickly countries’ reputations can change. Today, the Brazilian economy is stagnating, and no amount of infrastructure investment for the World Cup and the Olympics seems able to pull it out of its rut. Mexico’s economy, by contrast, is expanding at a steady clip, pushed along by a recent boom in industrial exports to the United States.

So Brazil has become the star that disappoints, while Mexico is the underperformer that suddenly shines. What is going on?

For starters, financial markets’ behavior says more about them than it does about the countries in question. With analysts focused more on short-term figures than on structural trends, it is not surprising that financial markets often fail to comprehend the real story.