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A Fiesta Could Await the Mexico ETF in 2014


To say the iShares MSCI Mexico Capped ETF (EWW) is the second-best Latin America single-country ETF of 2013 is accurate.

It is also somewhat misleading because of the six country-specific LatAm ETFs, only the Global X FTSE Argentina 20 ETF (ARGT) has traded higher this year. EWW has lost 3.2%, though that is far better than the dismal performances turned by its Brazilian, Chilean, Colombian and Peruvian equivalents.

What makes EWW’s 2013 lethargy more disappointing is that it was the best LatAm single-country ETF in 2012 and this year’s glum performance defied logic that states Mexican equities usually move in unison with their U.S. peers. [10 Worst Global Equity Markets Ranked by ETFs]

Some strategists see a rebound ahead for EWW in 2014.

“We believe the thesis of Mexico becoming the new China of manufacturing will continue during 2014 as more U.S. companies relocate manufacturing to Mexico,” Sterling Global Strategies Chief Investment Officer Mark Eickler in an interview with Investor’s Business Daily .

“Average manufacturing wages in China, when adjusted for productivity, are now above those in Mexico, according to a Boston Consulting Group study. Obviously, it is much cheaper and takes less time to ship products from Mexico than from China, and because NAFTA (North American Free Trade Agreement) goods from Mexico enter the U.S. duty-free,” added Eickler.

Other money managers have also started nibbling at LatAm ETFs with EWW being a favored destination. Some professional investors have been attracted by the allure of market friendly reforms promise to make the country’s economy more globally competitive and attractive to foreign investment. [Advisors Reconsider LatAm ETFs]

Still, some LatAm markets have detractors. Earlier this month, BlackRock, the world’s largest asset manager, revealed underweight ratings on Brazil and Mexico. J.P. Morgan does not agree, at least not when it comes to Mexico. Last week, the bank said it is overweight on Mexico.

“We are OW Mexico based on (1) strong forecast economic growth acceleration to 3.4% in 2014E from 1.4% in 2013E; (2) estimated domestic FX appreciation (vs. the USD) through 2014 year-end (MXN12.25 /USD); (3) enhanced cost competiveness and high sustainable growth outlook – the agenda on reforms has advanced; and (4) leverage to an expected US manufacturing rebound,” according to a J.P. Morgan note. [J.P. Morgan Boosts Mexico ETF]

“While business has been gaining steam, a burgeoning middle class has been taking root and their spending has been increasing. Mexico’s growth engine over the past five decades has been tourism and there are indications that the industry may begin to grow once again,” said Eickler in the IBD interview.

iShares MSCI Mexico Capped ETF