After more than a year of negotiations, the United States-Canada-Mexico Agreement (USMCA) is scheduled to be signed on Nov. 30 2018, at the G20 Summit in Argentina. The deal represents the new trade agreement between the former North American Free Trade Agreement (NAFTA) countries.
Market participants who want to gain more insight into the potential impact of the new agreement on the Mexican economy and capital markets can use the geographic revenue data to estimate the percentage of Mexican equities that derive their revenues domestically, and those that derive their revenues from the U.S. and Canada.
Using the constituents of the S&P/BMV IPC CompMx as of Oct. 31, 2018, we look at the revenue exposure of the constituents based on trailing 12-month figures. We found that the majority of Mexican companies derived their revenue locally (66.72%). Roughly 9.79% of revenues came from the U.S., and the remainder came from Canada or South American countries (see Exhibit 1).
Canada accounted for less than 1% of the revenues. Including Canada, approximately 10.74% of S&P/BMV IPC CompMx companies’ revenue exposure (roughly more than a third of the 32.3% foreign revenue) came from the former NAFTA countries.
Beyond the headline revenue exposure breakdown by country, it is potentially worthwhile to dive deeper into individual industries, as trade agreements tend to affect certain industries more than others.
In Exhibit 2, we present a detailed breakdown of the Mexican industries that have exposure to the U.S. and Canada. The top three industries in descending order based on revenue exposure are Materials (43.4%), Food, Beverage & Tobacco (25.2%), and Telecommunication Services (15.5%).
It is not by coincidence that the automobile industry is a contentious topic in the new trade deal. Of the 10.74% revenue coming from the U.S. and Canada, the Automobiles & Components Industry (GICS Code 2510) is the fifth-largest in terms of weighted revenue exposure. However, based on our analysis, we find it likely that Materials and Food, Beverage & Tobacco are the two industries that would be most affected in Mexico, more so than the headline-grabbing automobile industry.
It remains to be seen who will take the biggest losses and gains in the new USMCA deal, and whether this is a step forward in international trade. At a minimum, using geographic revenue provides a rough picture of Mexican industries that have the potential to be affected.
Revenue exposure gives us an additional tool to have a better understanding of what´s inside the index, characteristic, and risks that are not visible at a first glance.
 We used the FactSet Geographic Revenue Exposure (GeoRevTM) dataset to calculate revenue exposure. It provides a geographic breakdown of revenues at the country level for all companies with available data.