Imagine a country with 3.8% gross domestic product expansion in 2012, annual average corporate earnings growth of 14%, low labor costs and the geographic position to crush China in exports to the United States.
That almost seems like an investment from Shangri-la, right?
Still, many Americans dismiss this nation's potential investments as too risky. They think of the nation's vast poverty, government corruption and sketchy infrastructure rather than its thriving economy. Complementing the impressive growth, this emerging market possesses beautiful beaches, near-perfect weather, great food and incredible resorts.
If you haven't guessed it, I'm talking about our southern neighbor Mexico, the misunderstood yet dynamic investment prospect.
And I'm not the only one who thinks Mexico is a great place to invest. Amy Calistri, chief investment strategist of Daily Paycheck, says one of the best plays on the thriving Mexican economy is The Mexico Fund (MXF), which yields about a 7% and has provided her with an astounding 87%-plus total return since June 2010.
And there's more to this story...
MXF is a diversified fund that is invested in financials, health care, media, transportation and mining companies in Mexico. In other words, it's exposed to nearly all of Mexico's thriving sectors. This clearly reflects and verifies the massive growth of this once backwater nation.
Believe it or not, Mexico is the world's No. 1 producer of flat-screen TVs and a major exporter of aircraft and aviation parts. It is even a player in auto manufacturing, having produced nearly 3 million automobiles in 2012.
A boon to its economic growth is the country's 44 free-trade agreements, the most of any nation on Earth. As you know, free trade is the only time-proven technique for long-term economic growth.
Noted New York Times journalist and trend watcher Thomas Friedman has said he believes Mexico will be "one of the dominant economic powers in the 21st century." A primary reason why Friedman says that: Mexico has been rapidly increasing its exports to the United States. In 2005, Mexico was responsible for 11% of all manufactured imports to the United States; by the first half of 2012, this number had climbed to more than 14%. The U.S. Department of Commerce says this number could leap to 16% in 2018.
Talk about a success story.
While there is little question that MXF provides a solid, long-term investing opportunity, I like the iShares MSCI Mexico ETF (EWW) as a way to capture Mexican growth. This ETF rose 22% in the past year and has 38% of its assets in consumer-oriented stocks. It takes advantage of the growing Mexican middle class -- millions of formerly poverty-stricken Mexican citizens are rising up the class ladder thanks to the growth in manufacturing jobs. These workers are spending their new-found wealth in chain stores and household staples. Fomento Economico Mexicano (FMX), a chain of convenience stores and controller of the largest Coca-Cola (KO) bottler in the world, and Wal-Mart de Mexico (WMMVY), are the ETF's top holdings.
In addition, the ETF holds no energy assets, a good thing because most of the nation's energy supplies are controlled by the government.
I really like the technical picture of EWW right now. The price has pulled back into the value "buy" zone due to expectations of sluggish first-quarter growth by Mexican officials. This pullback is a buying opportunity that is not yet evident in MXF.
Risks to Consider: Mexico is "risk city" to say the least, due in part to rampant corruption and bad guy politicians. However, things are improving as the masses find legitimate ways to earn a living. With this inherent political risk comes high reward.
Action to Take --> Investors wanting to take advantage of the long-term growth of Mexico should consider MXF and EWW. However, right now, EWW looks better technically because of a recent pullback. I would not be surprised to see it at $95 and MXF at $44 within 18 months.
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