Moody’s Upgrade Provides Stable Outlook on Mexico Economy, ETF

ETF Trends

The Mexico exchange traded fund did not get much help after Moody’s Investors Service upgraded the country’s credit rating.

The iShares MSCI Mexico Capped ETF (EWW) closed modestly lower Wednesday, adding to its 9.2% year-to-date decline.

Citing improvements due to economic reforms signed by President Enrique Pena Nieto, Moody’s raised Mexico’s credit rating to A3, or upper medium investment grade and one rung higher than at Fitch Ratings and Standard & Poor’s, Bloomberg reports.

“Those who focused on the bigger picture, that the new administration was committed to pursuing much-needed change, and who were patient in seeing this thesis play out, are being rewarded today,” Robert Abad, a manager at Western Asset Management Co., said in the article.

The Mexican government approved 10 constitutional amendments under Pena Nieto’s first year, including a dissolution to the monopoly on oil production and improved competition in the telecom sector. Mexico is Latin America’s second-largest economy behind Brazil.

The rules of the game have been redefined” in Mexico, Mauro Leos, an analyst at Moody’s, said in the article. “If over time, in a two- or three-year horizon, we see the impact of the reforms is significant and leads to higher growth or better fiscal indicators than what we currently expect, that could lead to an even higher rating.”

Analysts expect Mexico’s economy to expand 3.42% in 2014 after 1.28% growth last year. Moody’s anticipates long-term growth to fall between 3% to 4%, compared to 2% to 3% before the reforms were enacted.

The iShares Mexico ETF tracks large-, mid- and small-cap Mexican stocks. Top sectors include consumer staples 21.8%, financials 19.2% and telecom services 18.3%. The fund’s top holding is telecom giant America Movil (AMX) at 17.8% of the portfolio’s weight.  [No Gusta on the Mexico ETF]

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For more information on Mexico, visit our Mexico category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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