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Protests hit Mexico City; should investors be worried?

Growing social unrest in Mexico culminated in a mass protest on the streets of its capital Thursday, with reports of fierce clashes between demonstrators and police.

The incident marks yet another example of months of popular anger against the government, with analysts signaling that the unrest has weighed on consumption and investment at a time of falling oil prices.

Tina Fordham, a political analyst at Citi said Thursday's clashes were an important development and said tensions were an example of "vox populi risk" - changing public opinion that is becoming increasingly volatile.

The troubles followed on from three separate marches in Mexico City during the day, with protesters then descending on the central square of Zocalo in the heart of the city, according to Reuters.

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Police used tear gas to disburse the crowds after rocks and Molotov cocktails were thrown at the presidential palace, according to the reports. This followed on from similar clashes seen close to the city's airport.

The government is facing a growing backlash over the fate of 43 missing students who have not been seen since late September. There have been accusations that corrupt officials handed over the students over to members of a drug gang with the country's attorney general saying that that the students were allegedly killed with their bodies then burned.

Carlos Capistran, a Mexico economist at Bank of America Merrill Lynch, believed that Mexico has entered a new period of social unrest, even before the news of Thursday's protest became apparent.

"This is weighing on consumption and investment, contributing to a weaker-than-expected recovery. We expect unrest could continue ahead of the elections in 2015," he said in a research on Thursday morning.

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Capistran predicts that any escalation will not turn into a full-blown crisis with Mexico having a relatively stable and mature democracy, but added that he could not dismiss the possibility either, explaining that the popular mood could deteriorate quickly.

Unrest has slowly been building in the country for 20 years, with some citizens upset at reforms that have changed the economic landscape of the Latin American nation. These structural changes have run alongside a war against the drug cartels that are ferrying narcotics to the U.S.. Because of the drug trade, Mexico suffers from relatively high homicide rates and the police force is also being increasingly seen as ruthless and overbearing.

Mexico's central bank cut its growth forecast outlook for 2014 this week and Marc Ostwald, a strategist at ADM Investor Services is estimating that new quarterly economic data - released Friday - will show a slowing of growth due to lower domestic demand and mining output.

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There are significant positives for the country, though. It's seen as having the ability to piggy-back on the U.S. recovery with a blossoming car industry and oil reforms in the country are set to increase the amount of foreign investors coming to its shores.

Ostwald wrote in his note on Friday morning that the economy is becoming more diverse, specifically mentioning the industrial sector, while Andre Loes, chief Latin America economist at HSBC, believes that the government has been active in insulating the country against oil's fall.

"Exports of oil have reduced a lot their importance over time," he told CNBC on Tuesday. "The government has a very smart strategy of hedging oil prices around the levels that they have been assumed for next year's budget."