For years, Mexico was an afterthought among investment bankers, a perennial underperformer overshadowed by Brazil.

Not anymore. Suddenly there’s growing conviction on Wall Street that the country is on the cusp of a breakout, if it can avoid squandering the opportunity.

Bank of America, Morgan Stanley and Goldman Sachs Group all predict investment banking revenue from Mexico will jump this year. Banco Santander, the top local bond underwriter last year, will invest US$1.5 billion to beef up technology for retail clients. JPMorgan chief executive officer Jamie Dimon said his bank has “doubled or tripled” capital in the country over the past six years and sees a “great” outlook for growth.

Mexico is having a moment, with the potential to benefit for decades to come from a Covid-era nearshoring boom that’s bringing new factories making everything from laptops to cars.

Wages are up and jobs are abundant, especially in the industrial heartland. Foreign direct investment helped make the peso one of the world’s best performers in 2023.

Government finances are stronger than in other developing nations – debt relative to the size of the economy is well below the average for countries that share its credit rating – and business executives are guardedly optimistic about the top candidates for June’s presidential ballot.

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“The story is real,” Emilio Romano, the head of Bank of America’s Mexico unit, said in an interview at his office. “We have this structural change to make Mexico grow at a rate that we haven’t seen in decades.”

Still, longtime Mexico observers know the country has a track record of missing out on big opportunities, with economic growth since the North American Free Trade Agreement took effect in 1994 just about 2 per cent a year – well below the emerging-market average.

The country’s capital markets are underdeveloped relative to peers, and the next president will need to push for new policies to attract investment, especially in the clean energy sector, according to Rodolfo Ramos, a strategist at Bradesco BBI.

For now, though, Mexican markets are on a tear. Bank of America, which led investment banking revenue in Latin America and Mexico in 2023, according to London-based research firm Dealogic, sees a spate of big mergers and expects equity issuance will climb this year after tripling to US$1.2 billion in 2023. Corporate bond sales rose to the highest since 2015 last year, and bankers see a strong start in 2024.

Mexico’s share of investment banking revenue in Latin America climbed to 20 per cent last year from 13 per cent in 2022, and trends signal that growth will continue. It’s taking market share mainly from Chile, Colombia and Argentina, countries that saw much slower growth last year. 

Brazil still gets three times as much investment banking revenue as Mexico, and it remains a much more dynamic economy. But Mexico is showing signs of catching up, with forecasts calling for four straight years through 2025 in which Mexico’s growth will top Brazil’s.

At Bank of America, Mexico posted the biggest revenue increase in the region in 2023, according to Augusto Urmeneta, who leads Latin America operations for the Charlotte, North Carolina-based lender. 

BofA plans to keep investing “to support both our global clients that want to do more there, as well as our Mexican clients that see growth opportunities,” Urmeneta said in an interview. He’s optimistic about changes to capital markets laws that should make it easier to start hedge funds and may cut down on the red tape needed to list shares. 

“It will likely serve as a catalyst for increased deal activity,” he said.

JPMorgan’s Dimon sounded just as enthusiastic during an interview with El Financiero Bloomberg TV in November.

“If you had to pick a country, this might be the number one opportunity,” Dimon said.

Morgan Stanley sees the boom continuing into next year, even if presidential elections in Mexico in June and the US in November produce some volatility. 

“We saw Mexico emerging very strongly in terms of deals,” said Alessandro Zema, the co-head of investment banking for Latin America at Morgan Stanley.

Real estate investment trusts were the bulk of Mexico’s equity sales last year. In June, industrial property developer Corporation Inmobiliaria Vesta raised US$446 million with a New York share sale, the most by a Mexican firm in the US in more than a decade. In December, it raised another US$149 million. Traxion, a trucking and logistics firm, sold US$254 million in an additional offer in Mexico in August. 

This year will likely see the initial public offering for Mexican industrial real estate trust Fibra Next, which pulled its up to US$1.2 billion sale last year after a last-minute snag over the company’s tax status. It’s set to be the country’s largest IPO since 2018.

Corporate bond sales should keep up momentum in early 2024 as businesses ramp up spending, according to Felipe Garcia Ascencio, chief executive officer of Banco Santander’s Mexico unit. Last year’s issuance was led by some of the nation’s largest companies, like billionaire Carlos Slim’s America Movil and food maker Grupo Bimbo, owner of Sara Lee-brand breads.

As equity capital markets gain momentum, investors will most likely focus on “large, successful, well-established brands,” said Facundo Vazquez, the head of Latin America equity capital markets for Goldman Sachs. Start-ups and small tech firms aren’t the priorities now, since investors want “size and liquidity.”

Investors have also liked the central bank’s effort to slow inflation, Vazquez added. After moving quickly to raise rates in 2021, Mexico is expected to take one of the region’s most cautious approaches to lowering borrowing costs, demonstrating a commitment to price stability.

“They’re gonna do whatever they need to do to fight inflation,” Vazquez said. “That is another reason why everybody is bullish in Mexico.” BLOOMBERG