Mexico ETFs Get Help From Surprise Rate Cut

ETF Trends

Shares of the iShares MSCI Mexico Capped ETF (EWW) are up 1.3% Friday and the largest Mexico ETF is trading at its highest levels of 2014 after Banco de Mexico, the country’s central bank, surprisingly cut interest rates.

Amid signs Latin America’s second-largest economy is still struggling, Banco de Mexico pared its benchmark rate by 50 basis points to 3%, a record low. Last month, the central bank slashed its 2014 GDP growth forecast to 2.3% to 3.3% from a previous estimate of 3% to 4%, report Eric Martin and Nacha Cattan for Bloomberg.

“Emerging economic activity continues to show weak growth rates, mainly reflecting the evolution of domestic demand and the slowdown in most developed countries and China. On balance, risks prevail down to the growth of the world economy. Consequently, it is expected that much of economies, both advanced and emerging, a prevailing monetary policy stance accommodative for a still longer period,” said the central bank in a statement.

At this writing, EWW trades slightly above $68, a price the ETF has not closed at or above since the last trading day of 2013. Last year, EWW was the second-best performer among the single-country ETFs tracking Latin American nations, trailing only the Global X FTSE Argentina 20 ETF (ARGT) , though that is not saying much because ETFs with exposure to the region struggled last year and EWW finished with a modest 2013 loss. [Mexico ETF Tries to Rally]

This year, Mexico’s waning economic activity has caught up to EWW as the ETF is one of the worst performers among single-country Latin America ETFs. Although the ETF entered Friday with a 1.6% year-to-date gain, the iShares MSCI Brazil Capped ETF (EWZ) has outperformed EWW by better than four-to-one although investors have allocated more capital to the Mexico ETF. [Investors Prefer Mexico ETF Over Brazil Rival]

The Global X FTSE Colombia 20 ETF (GXG) has been more than five times better than EWW this year.

The surprise rate cut sent the peso lower by 0.2% against the greenback, boosting the db X-trackers MSCI Mexico Hedged Equity Fund (DBMX) by almost 1%. DBMX, which features a short peso component, is trading near its highest levels since its late January debut. The currency hedged Mexico ETF has outperformed its unhedged rival by 100 basis points this year.

iShares MSCI Mexico Capped ETF

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