ENTITY: MEXICAN CAPITAL MARKETS

A Macro Intelligence Memo | June 2030 | Investor Edition

From: The 2030 Report Global Intelligence Division Date: June 25, 2030 Re: Nearshoring Tailwinds, Currency Volatility, and Bifurcated Opportunity

EXECUTIVE SUMMARY

Mexico's capital markets have experienced substantial appreciation driven by nearshoring dynamics—the relocation of manufacturing from China to Mexico in response to US-China trade tensions and labor cost optimization. The IPC (Índice de Precios y Cotizaciones) has appreciated 34% from 2028 levels, significantly outperforming broader Latin American indices and emerging market benchmarks.

However, this appreciation masks bifurcated opportunity dynamics: nearshoring beneficiary stocks have appreciated 45-67% while traditional sectors have appreciated modestly (0-18%). Additionally, Mexican peso depreciation of 22% since 2028 has created significant currency headwinds for USD-based investors, transforming local appreciation into modest USD returns.

For investors, Mexico represents a nearshoring-driven opportunity thesis with meaningful execution risk. Thesis-driven positioning toward nearshoring beneficiaries can generate attractive returns; non-thesis-driven exposure is substantially overvalued at current levels.

This memo assesses the nearshoring opportunity, quantifies valuation dynamics, and provides investor guidance on thesis-based positioning and currency management.

SUMMARY: THE BEAR CASE vs. THE BULL CASE

This memo presents the bear case—nearshoring-driven appreciation masked by peso depreciation, with elevated valuations creating limited upside for USD investors.

THE BEAR CASE (Current Scenario - June 2030): IPC up 34% locally; peso down 22%; USD investor return only 4.4%. Nearshoring beneficiaries valued at 14.8x P/E (premium). Currency depreciation eroding returns. Base case probability-weighted fair value shows 4% downside to current levels. Political risk and nearshoring reversal risks material.

THE BULL CASE ALTERNATIVE: Government-Coordinated Nearshoring Acceleration (Hypothetical 2028-2029): If Mexican government had implemented aggressive nearshoring support and currency stabilization in 2028-2029, the market could have achieved dramatically different outcomes: - Infrastructure investment: $3-5 billion government investment in manufacturing zones, ports, and logistics - Tax incentives: 15-20% capex credits for nearshored manufacturing facilities - Peso stabilization: Strong forward guidance targeting 16.5-17.5 MXN/USD (vs. actual 18.8) - Labor policy: Wage competitiveness through productivity incentives; workforce development programs - Supply chain coordination: Government facilitation of supply chain consolidation in Mexico - Manufacturing capacity expansion: Support for 150-200 additional facilities (vs. actual 300-400 total)

Projected Alternative Outcomes by June 2030: - IPC appreciation: 42-52% (vs. actual 34%) - Nearshoring beneficiary performance: 60-75% (vs. actual 45-67%) - Peso depreciation: Limited to 8-12% (vs. actual 22%) - USD investor return: 28-38% (vs. actual 4.4%) - Nearshoring beneficiary valuation: 16-18x P/E (vs. actual 14.8x) due to faster ramp confidence - Manufacturing output growth: 22-28% (vs. actual 18-22%) - Regional employment: 280,000-320,000 jobs created (vs. actual 220,000-260,000) - P/E multiple expansion: To 11.5-12.0x aggregate (vs. actual 10.6x aggregate)

What Would Have Been Needed: Aggressive government coordination on infrastructure, incentives, and currency stabilization in 2028. Instead, government took passive approach; peso depreciation consumed half of equity gains.

SECTION 1: THE NEARSHORING SUPER-CYCLE (2024-2030)

The Historical Context: China Decoupling

Between 2015 and 2023, US-China relations deteriorated significantly: - Trade tensions (tariffs, supply chain restrictions) - Technology competition (semiconductors, AI, advanced manufacturing) - Geopolitical rivalries (Taiwan, South China Sea, climate, democracy) - Decoupling thesis: Manufacturing relocating from China to "trusted" countries

The Nearshoring Pivot (2024-2030)

Companies responded to China decoupling by moving manufacturing from China to Mexico, driven by: 1. Geographic Proximity: Mexican manufacturing is 2,000 km from US customers vs. 15,000+ km from China 2. Trade Agreements: USMCA provides tariff-free access to US markets (vs. tariffs on Chinese goods) 3. Labor Costs: Mexican labor costs (USD 8-12/hour) remain below developed countries but above China (USD 5-8/hour) 4. Supply Chain Resilience: Nearshoring reduces supply chain risk vs. long-distance supply chains 5. Policy Support: US government incentives (USMCA, labor provisions) favor Mexico

Magnitude of Nearshoring

Manufacturing Relocation Scale: - Manufacturing facilities relocated from China to Mexico: 300-400 facilities (2024-2029) - Employment generated: 220,000-260,000 manufacturing jobs - Capital invested: USD 45-55 billion - Annual manufacturing output increase: 18-22%

Affected Sectors: - Automotive (engines, transmissions, assemblies): 32% of nearshored volume - Electronics (computers, semiconductors): 21% of volume - Appliances (white goods): 12% of volume - Textiles and apparel: 8% of volume - Medical devices and pharmaceuticals: 7% of volume - Other manufacturing: 20% of volume

SECTION 2: CAPITAL MARKET PERFORMANCE AND BIFURCATION

Overall Market Performance

IPC Index Performance: - 2028 level: 47,200 points - June 2030 level: 63,300 points - Appreciation: 34.0% over 20 months - YTD 2030: 8.4% - Trailing 12-month dividend yield: 2.1%

Sectoral Performance Dispersion (June 2030 vs. June 2028):

The dispersion demonstrates clear bifurcation: nearshoring beneficiaries have appreciated 45-67% while traditional sectors have appreciated modestly (0-22%) or declined (-2%).

Valuation Divergence

Nearshoring Beneficiary Stocks (Valuation June 2030): - P/E (forward): 14.8x average (premium valuation) - Price-to-Sales: 2.6x - Dividend yield: 1.2% (growth orientation; minimal dividends) - Revenue growth (5-year CAGR): 18-24% annually - Profit growth: 22-28% annually

Traditional Sector Stocks (Valuation June 2030): - P/E (forward): 8.2x average (value valuation) - Price-to-Sales: 0.8x - Dividend yield: 4.2% (income orientation) - Revenue growth: 1-3% annually - Profit growth: 2-5% annually

Valuation Gap: 14.8x premium vs. 8.2x value represents 81% valuation divergence.

SECTION 3: PESO DYNAMICS AND CURRENCY RISK

The Peso Depreciation (2028-2030)

Peso Performance: - 2028 level: MXN 15.4 per USD - June 2030 level: MXN 18.8 per USD - Depreciation: 22.1% over 20 months - Annualized depreciation rate: 13.3%

Causes of Depreciation: 1. Interest Rate Differential: High US rates (5.2%) vs. Mexican rates (4.8%) attract capital to USD 2. Inflation Differential: Mexico inflation (3.1%) vs. US inflation (2.1%) creates purchasing power parity headwind 3. Capital Flows: Nearshoring investments are large but don't offset currency outflows 4. Central Bank Intervention: Mexican central bank intervention is limited; market-driven depreciation

Impact on USD-Based Investor Returns

Example Calculation: USD Investor in Mexican Equity (2028-2030) - Local stock return (in MXN): +34.0% - Currency headwind (MXN depreciation): -22.1% - USD investor total return: (1.34 × 0.779) - 1 = +4.4%

Key Insight: USD investors achieved only 4.4% return despite 34% local stock appreciation. Currency depreciation consumed 23 percentage points of return.

Forward Currency Outlook (2030-2035): - Base case: Peso stabilizes at 18-19 MXN/USD (additional 0-5% depreciation) - Bull case: Peso strengthens to 17-18 (1-5% appreciation) if nearshoring continues, inflation moderates - Bear case: Peso depreciates further to 20-22 (5-15% depreciation) if capital outflows accelerate

SECTION 4: SECTORAL OPPORTUNITY ASSESSMENT

Nearshoring Beneficiary Sectors (Overweight)

Auto Parts and Automotive Manufacturing: - Companies: Tier-1 suppliers (engine blocks, transmissions, electrical systems) - Performance driver: Vehicle production in Mexico for US market - Estimated nearshored volume: 35% of Mexico automotive production - Revenue growth: 20-24% annually (2030-2035) - Valuation: 14-16x P/E (premium) - Dividend yield: 0.8-1.2% (growth orientation)

Investment thesis: Nearshoring in automotive is substantial and sustainable. Manufacturing investments are multi-billion, creating long-term demand. However, valuations are elevated; entry at pullbacks preferable to current levels.

Logistics and Supply Chain: - Companies: Port operators, logistics firms, warehousing companies - Performance driver: Increased nearshoring creates logistics demand - Estimated volume growth: 15-20% annually - Revenue growth: 16-20% annually (2030-2035) - Valuation: 13-15x P/E (elevated) - Dividend yield: 1.8-2.4%

Investment thesis: Logistics is essential infrastructure supporting nearshoring. Long-term contracts with manufacturers provide visibility. Valuations are elevated but justified by growth.

Materials and Industrial Equipment: - Companies: Steel, specialty materials, industrial equipment suppliers - Performance driver: Input materials for nearshored manufacturing - Estimated demand growth: 16-18% annually - Revenue growth: 12-16% annually (2030-2035) - Valuation: 12-14x P/E (elevated) - Dividend yield: 2.0-2.8%

Investment thesis: Nearshoring creates demand for inputs; growth is meaningful but more cyclical than logistics. Valuations are elevated relative to traditional industrials.

Non-Nearshoring Sectors (Selective or Underweight)

Financial Services: - Performance: +22% (2028-2030); modest relative to nearshoring beneficiaries - Thesis: Banks benefit from nearshoring financing but are not primary beneficiaries - Valuation: 9-10x P/E (reasonable) - Dividend yield: 2.8-3.2% (income attractive)

Investment thesis: Financial services are supplementary beneficiaries. More attractive on valuation than nearshoring pure-plays. Consider for income-oriented positioning.

Traditional Manufacturing: - Performance: +12% (2028-2030); underperformance due to competition - Thesis: Facing competition from nearshored imports; low growth - Valuation: 8-10x P/E (reasonable) - Dividend yield: 3.4-4.2% (income attractive)

Investment thesis: Avoid concentrated exposure; some competitively advantaged firms acceptable for value positioning.

Consumer/Retail: - Performance: +8% (2028-2030); underperformance due to imports - Thesis: Facing competition from manufactured imports; limited growth - Valuation: 10-12x P/E (reasonable on near-term; at risk longer-term) - Dividend yield: 2.2-3.1%

Investment thesis: Limited growth; import competition is headwind. Avoid unless holding for income.

SECTION 5: MACROECONOMIC CONTEXT

Economic Growth and Nearshoring Impact

2025-2029 Economic Performance: - Average GDP growth: 2.8% annually - Manufacturing growth: 12-16% annually (driven by nearshoring) - Employment growth: 1.2% annually (concentrated in manufacturing regions) - Inflation: 2.8-3.2% (above historical average) - Current account: Deficit of USD 15-18 billion annually

2030-2035 Outlook: - Projected GDP growth: 3.2-3.8% annually (nearshoring provides tailwind) - Manufacturing growth: 6-10% annually (as nearshoring matures) - Employment growth: 1.5-1.8% annually - Inflation: 2.5-3.0% (moderating slightly) - Current account: Modest improvement as manufacturing increases export value

Regional Dynamics

Nearshoring Concentration: - Manufacturing hubs: Monterrey, Guadalajara, Querétaro, Nuevo León - Employment concentration: 60% of nearshored jobs in northern states - Regional growth divergence: Manufacturing states +12-16% annually; non-manufacturing states +0-2% annually

SECTION 6: VALUATION ASSESSMENT AND INVESTMENT RECOMMENDATION

Fair Value Estimates

Nearshoring Beneficiary Stocks (Current 14.8x P/E):

Bull Case (25% probability): - Thesis: Nearshoring accelerates; manufacturing output in Mexico reaches 35% of US supply - 2035 revenue growth: 18-22% annually - Valuation: 16-18x P/E (premium growth multiple) - Fair value: 17.5x current earnings - Upside: +18% from current levels

Base Case (50% probability): - Thesis: Nearshoring continues at current pace; manufacturing matures - 2035 revenue growth: 8-12% annually - Valuation: 13-14x P/E (moderate growth multiple) - Fair value: 13.5x current earnings - Fair value: Approximately current levels (neutral)

Bear Case (25% probability): - Thesis: Nearshoring slows; geopolitical tensions increase; nearshored manufacturing returns to China - 2035 revenue growth: 2-4% annually - Valuation: 9-10x P/E (mature multiple) - Fair value: 9.5x current earnings - Downside: -36% from current levels

Probability-Weighted Fair Value: (0.25 × 1.18) + (0.50 × 1.00) + (0.25 × 0.64) = 0.96x current Implication: Nearshoring beneficiary stocks are currently slightly overvalued (4% downside to fair value)

Traditional Sector Stocks (Current 8.2x P/E): - Fair value: 8.5-9.0x P/E (reasonable to slightly cheap) - Implication: Traditional sectors are reasonably valued; limited upside but dividend yields attractive

Investment Recommendation

Overall Rating: HOLD with SELECTIVE POSITIONING

OVERWEIGHT Recommendation: - Nearshoring beneficiary sectors (auto parts, logistics): Suitable for investors with high conviction on nearshoring sustainability - Thesis: Nearshoring is structural (US policy, China tensions); manufacturing investments support multi-year growth - Appropriate position size: 8-12% of emerging market allocation - Entry strategy: Average in; dollar-cost average if valuations remain elevated; reduce on weakness

NEUTRAL Recommendation: - Financial services: Beneficiaries but not primary beneficiaries; reasonable valuations - Appropriate position size: 3-5% of emerging market allocation - Entry strategy: Standard fundamental analysis; no urgency to enter

UNDERWEIGHT Recommendation: - Traditional manufacturing: Facing competitive headwinds; avoid concentrated exposure - Appropriate position size: 0-2% of emerging market allocation - Entry strategy: Value-oriented positioning only; focus on dividend payers

Currency Strategy

For USD-Based Investors:

Strategy 1: Unhedged (Expect 3-5% annual peso depreciation) - Suitable for: Investors with multi-year horizon comfortable with currency volatility - Return expectation: 8-12% local return minus 3-5% currency depreciation = 3-9% USD return - Volatility: Higher due to currency fluctuation

Strategy 2: Partial Hedge (50% Hedged) - Suitable for: Investors wanting nearshoring exposure while managing currency risk - Mechanics: Hedge 50% of peso exposure using forward contracts (cost: 2-2.5% annually) - Return expectation: 4-7% USD return - Volatility: Moderate; hedging cost offsets some currency gains/losses

Strategy 3: Fully Hedged (100% Hedged) - Suitable for: Conservative investors wanting no currency exposure - Mechanics: Hedge 100% of peso exposure using forward contracts (cost: 2-2.5% annually) - Return expectation: 6-10% local return minus 2-2.5% hedging cost = 3-8% USD return - Volatility: Low; pure equity market volatility only

Recommendation: Partial hedge (50%) provides balance between nearshoring return capture and currency risk mitigation.

THE BULL CASE ALTERNATIVE: Government Nearshoring Acceleration (Hypothetical 2028-2029)

Had Mexican government implemented aggressive nearshoring support in 2028-2029, capital market outcomes would have been dramatically different:

Government Intervention Program (Hypothetical Q2 2028 - Q4 2029): 1. Manufacturing Infrastructure Investment: $3-5 billion government investment - Manufacturing zones development (power, water, communications) - Port expansion and logistics infrastructure - Transportation network improvements in manufacturing regions

1. Corporate Tax Incentives:
2. 15-20% capex credits for nearshored manufacturing facilities
3. 10-year tax holidays for new manufacturing zones

4. Accelerated depreciation for manufacturing equipment

5. Labor Policy & Workforce Development:

6. Workforce development: $1-2 billion vocational training programs
7. Wage competitiveness support: Tax credits for manufacturers maintaining wage levels

8. Immigration facilitation: Fast-track visas for foreign technical expertise

9. Currency Stabilization:

10. Forward guidance: Strong commitment to 16.5-17.5 MXN/USD range
11. Central bank intervention: Willing intervention to defend range

12. Fiscal discipline: Public commitment to fiscal sustainability

13. Supply Chain Coordination:

14. Government facilitation of consolidation in Mexico
15. Coordinated investment in transportation/warehousing
16. Customs/regulatory streamlining for nearshored supply chains

Projected Alternative Outcomes by June 2030: - IPC appreciation: 42-52% (vs. actual 34%) - Nearshoring beneficiary appreciation: 60-75% (vs. actual 45-67%) - Peso depreciation: Limited to 8-12% (vs. actual 22%) - USD investor total return: 28-38% (vs. actual 4.4%) - Nearshoring beneficiary valuation: 16-18x P/E (vs. actual 14.8x) - Manufacturing output growth: 22-28% (vs. actual 18-22%) - Regional employment creation: 280-320K jobs (vs. actual 220-260K) - IPC aggregate P/E: 11.5-12.0x (vs. actual 10.6x) - Regional GDP growth: 5-7% annually (vs. actual 3.2-3.8%)

Cost-Benefit Analysis: - Government program cost: $4-6 billion (2028-2029) - Benefits: Increased manufacturing output (+$15-25B annually by 2032), employment creation (multiplier effects $8-12B), currency stabilization benefit (avoiding 22% depreciation = $40-60B value preservation) - Net benefit: $40-80 billion in economic value

Why This Path Wasn't Taken: - Political constraints: Government lacked fiscal capacity (competing priorities) - Institutional coordination: Difficulty coordinating across federal/state governments - Timing: Infrastructure/incentive decisions require 12-18 months; market moved faster - Currency management: Central bank independence limited government currency management options

SECTION 7: MACRO RISKS AND HEDGING

Key Risk Factors

Risk 1: Nearshoring Reversal - Trigger: Geopolitical normalization; Chinese wage compression; policy changes - Probability: 20-25% - Impact: -30 to -40% downside for nearshoring beneficiary stocks - Mitigation: Position sizing; diversification; exit triggers if nearshoring momentum weakens

Risk 2: Peso Instability and Capital Outflows - Trigger: Regional political instability; central bank credibility loss; capital flight - Probability: 15-20% - Impact: -15 to -25% currency depreciation - Mitigation: Currency hedging; forward contracts

Risk 3: Political Instability and Policy Reversals - Trigger: Election volatility; drug cartel violence; energy policy changes - Probability: 25-30% - Impact: -20 to -30% market decline - Mitigation: Diversification; avoid concentrated bets; monitor election cycle

SECTION 8: INVESTMENT VEHICLES

Recommended Vehicles

Equities: 1. Nearshoring beneficiaries: Grupo Indurial, Grupo Gigante, CEMEX 2. Diversified exposure: Mexican stock ETFs, Mexico-focused mutual funds

Bonds: - Mexican government bonds (10-year): 8.5-9.2% yield - Corporate bonds from nearshoring firms: 9-12% yield - Currency risk: Substantial (20%+ currency depreciation risk)

Currency Vehicles: - Peso forward contracts for hedging (2-2.5% annual cost) - FX-hedged Mexican equity ETFs (hedge costs built in)

CONCLUSION

Mexico's capital markets offer a nearshoring-driven opportunity with meaningful execution risk. Nearshoring beneficiary stocks have appreciated substantially and are fairly valued to slightly overvalued at current levels. Currency depreciation of 22% has created headwinds for USD investors, transforming local appreciation into modest USD returns.

For thesis-driven investors with conviction on nearshoring sustainability and willingness to hedge currency risk, selective positioning toward nearshoring beneficiaries can generate attractive returns (6-10% annually over medium-term). For tactical/opportunistic investors, current valuations do not provide compelling entry points; awaiting pullbacks or currency stabilization is prudent.

Recommended positioning: Overweight nearshoring beneficiaries with 50% currency hedge for USD-based investors; total Mexico allocation 8-12% of emerging market exposure; focus on logistics and auto parts sectors; maintain discipline on entry prices.

DIVERGENCE COMPARISON TABLE: BEAR CASE vs. BULL CASE (2028-2030)

Key Divergence Drivers: 1. Infrastructure Investment: Bear case = market-driven; Bull case = $3-5B government investment 2. Tax Incentives: Bear case = standard corporate rates; Bull case = 15-20% capex credits 3. Currency Policy: Bear case = market depreciation; Bull case = forward guidance + stabilization 4. Labor Policy: Bear case = market wages; Bull case = wage competitiveness support 5. Coordination: Bear case = decentralized investment; Bull case = coordinated manufacturing zones

This memo has been prepared by The 2030 Report for institutional investors. It contains proprietary equity research and investment recommendations.

CONFIDENTIAL — INSTITUTIONAL INVESTORS ONLY

REFERENCES & DATA SOURCES

The following sources informed this June 2030 macro intelligence assessment:

1. Banco de México. (2030). Economic Report: Growth Dynamics and Structural Challenges in North American Integration.
2. Mexican Statistics Institute. (2030). Economic Census: Manufacturing Output, Employment, and Trade Flows.
3. Mexico Secretary of Economy. (2029). Foreign Direct Investment Report: US Company Operations and Regional Relocation Trends.
4. OECD. (2030). Economic Survey of Mexico: Structural Reform Needs and Competitiveness Assessment.
5. Inter-American Development Bank. (2030). Economic Outlook for Latin America: Mexico's Regional Position.
6. World Bank Mexico. (2030). Development Report: Labor Market Dynamics and Technology Adoption.
7. McKinsey Mexico. (2029). Manufacturing Competitiveness: Regional Positioning and Cost Structure Analysis.
8. Grupo Expansión. (2030). Mexican Business Report: Corporate Strategy and Market Dynamics.
9. US-Mexico Chamber of Commerce. (2029). Bilateral Trade Analysis: Manufacturing Integration and Supply Chain Dynamics.
10. Confederación de Cámaras Industriales de México. (2030). Industrial Competitiveness Report: Technology and Export Growth.
11. Bloomberg Terminal. (2030). Capital Markets Data: Sector Valuations and Investment Performance Metrics.