The Mexico exchange traded fund has vaulted almost 15% over the last month after the newly elected president pledged to enact market-friendly economic reforms.
The iShares MSCI Mexico Index Fund (EWW) increased 14.7% over the past month and is up 19.8% year-to-date.
Mexico’s stocks rallied after Enrique Pena Nieto won the presidential election on July 1.
Mexican equities, IPC Index, rose for its seventh straight session and closed at a record high for the third straight session Tuesday, trading at 41,273, reports Anthony Harrup for The Wall Street Journal.
“The Mexican stock exchange continues to outshine the world’s main stock markets, which are reflecting concerns about global economic growth,” the Metanalisis research firm said in a report.
Banorte-Ixe believes the IPC index increase above 41,000 was due to high investment flows and not because of fundamentals or stock valuations.
With the IPC dipping to 41,191, EWW was down Wednesday on what some market observers attribute to normal profit taking after Mexican stocks experienced three straight record closing highs.
“In this rising stock market, we continue to see stocks surpassing important resistance levels,” the Banorte-Ixe brokerage said in another WSJ report. The firm calculates a 40,500 support level.
Looking ahead, the Mexico’s economic well-being is tied to the U.S. growth, as Mexico exports 80% of its products to the states. Additionally, even without the pledged economic reforms, the Mexican economy is expected to see healthier expansions. [Emerging Market ETFs: Higher Growth, Better Demographics]
“Even if reforms do not take place, the growth rate should be between 3.5% and 4% per year,” according to an analyst in a Bloomberg report.
“In the next decade Mexico is likely to become LatAm’s largest economy and one of the most dynamic among emerging markets,” Nomura analyst Benito Berber said in a report.
However, weakness in the Mexican peso could diminish the returns on the EWW ETF. The Mexican peso currently trades at 13.12 per U.S. dollar. Nomura Holdings has reduced its year-end projection for the peso to 13.85 per U.S. dollar from 12.80 due to the ongoing European debt crisis, according to Bloomberg.
The peso “is particularly sensitive to global risk-on and risk-off periods,” Benito Berber, a strategist for the bank, said. “The eurozone crisis has yet to reach its climax.”
iShares MSCI Mexico Index Fund
For more information on Mexico, visit our Mexico category.
Max Chen contributed to this article.