馃捀 M脡XICO: INFLATION vs MARKET 馃捀
There are many studies about US inflations against its stock market because it sets the trend in the western world. However, the emerging market will have a relevant role due to the Nearshoring. It is pertinent to talk about it, especially since they have major systemic problems such as inflation and low levels of advanced industrial and research & development spending.
The experience shows that high inflation levels are detrimental to overall market performance. In this post, this notion is analyzed from the monthly data of 35 years (1988 to 2023), comparing the annual inflation vs anual returns of Mexican stock market (IPC). Likewise, this study establishes inflation as the independent variable and the IPC as the dependent variable.
The 850 items show that there is a ± 21.11% correlation between inflation and IPC. Nevertheless, the IPC behaviour is determined by the inflation by ± 4.45%. That means the inflation is not a strong factor to incide in the Mexican stock market. Also, it is important to note that the stock market reflects future expectations, and inflation is a measure of past inflation.
The lack of strong correlation may be explained by the above and the fact that market usually overreacts to economic and business phenomena. Whatever it is, unless there was a large inflationary shock, standard inflation is not likely to hurt the market.
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2023
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