PESO CRISIS : This Time, Peso’s Woes Haven’t Sent U.S. Investors Packing

Once bitten, twice shy.

U.S. mutual funds, which fled Mexico’s markets after last December’s peso devaluation and then missed a six-month rally in those markets, this time are staying put despite the peso’s latest plunge, fund executives and analysts said Friday.

“We aren’t cutting and running,” said William Truscott, manager of Scudder, Stevens & Clark’s Latin America fund, which has about 22% of its $500 million in assets invested in Mexican stocks.

With the dollar able to buy even more pesos, “it’s a great time to go in and buy,” Truscott said, referring to Mexican stocks denominated in pesos.

Nor have U.S. investors pulled a significant amount of cash out of their Latin American funds, despite Mexico’s latest troubles, analysts said.

Among the Latin American funds tracked by newsletter Mutual Fund Trim Tabs in Santa Rosa, Calif., redemptions this week ran about 1% of the funds’ assets, a figure the newsletter called “not particularly unusual.”

The funds’ confidence has helped the Mexican stock market, or Bolsa, from declining further in the face of the peso crisis. Since the peso’s most recent plunge began in late October--during which it has weakened from about 6.5 to the dollar to about 7.6 now--the main Bolsa stock index is off only slightly, although it has been volatile.

But analysts warned that further peso crises could quickly change the minds of fund managers and investors.

A number of managers “are turned off from Mexico, and so there’s no new money going in, and there hasn’t been for some months,” said Thomas Trebat, a Mexican markets analyst at Chemical Banking Corp. in New York.

The managers’ confidence in Mexico “is not necessarily a permanent state,” Trebat said. If there are more sudden and sharp declines in the peso, he said, even the relatively low sums of U.S. cash now invested there “are going to be jarred loose.”

It hasn’t been easy for investors to sit tight. The average Latin American fund has plummeted 40% since the peso was devalued Dec. 20, 1994--despite a rebound in Mexican stocks during the summer--and has declined 12% since Sept. 1 alone, according to Lipper Analytical Services, a fund research firm in New York.

The peso itself closed little changed at 7.58 to the U.S. dollar in thin trading Friday, one day after the Bank of Mexico aggressively bought pesos to stem a historic selloff of the currency. The peso had fallen to a record-low 7.8 pesos per dollar Wednesday.

One reason why U.S. mutual funds are willing to stick with Mexico is that they believe the economy there, though still fragile, is stronger than it was early this year when Mexico’s crisis prompted the United States to arrange a $50-billion multinational bailout of the country.

“This was a very unexpected move in the peso,” said Soraya Betterton, manager of GT Capital Management Inc.’s Latin America Growth Fund, a San Francisco-based fund with $300 million in assets.

Fund managers are also more confident about Mexico because the amount of cash they’ve invested there remains relatively low following their big pullout early this year, so they have less at risk, analysts said.

Latin American funds “already had reduced their positions in Mexico, and they now average less than 20%” of their total assets, down from 30% or more last year, said Kim Rebecca, a Latin American specialist at Morningstar Inc., a fund research firm in Chicago.

“To my knowledge, there has been no active decision by the funds to pull out” of Mexico, she said. “Mostly, they learned from the last time to sit through the crisis.”

Indeed, Scudder’s Truscott said he’s been buying Telefonos de Mexico, the Mexican telephone giant known as Telmex, “because you’re buying a good company that generates a lot of cash, and at a cheap price.”