A Post-Election Look at the Mexico ETF
This article was originally published on ETFTrends.com.
Mexico, Latin America's second-largest economy behind Brazil, recently held national elections with controversial leftist candidate Andrés Manuel López Obrador (AMLO) emerging as the country's next president.
The iShares MSCI Mexico Capped ETF (EWW) , the largest exchange traded fund dedicated to Mexican equities, tumbled immediately following the election results but has since bounced back. Over the past week, EWW is up more than 5%.
“AMLO’s victory represents a blow to a political establishment tainted by corruption charges, rising crime and persistent inequality, and suggests the forces of populism have not yet peaked around the world,” said BlackRock in a recent note.
While AMLO quickly gained popularity on his pledge that “the country will be cleansed” of corruption, market watchers dumped Mexican equities on fears that the new president’s policies could cripple the economy. AMLO said on the campaign trail hat he would roll back privatization in the country’s oil industry and double pensions for the elderly.
Issues To Contend With
AMLO's victory comes as Mexico negotiates with Canada and the U.S. on a new trade deal. President Donald Trump has censured the current deal, NAFTA, calling it the worst ever. Tensions intensified this week after the Trump administration said it will implement steel and aluminum tariffs on imports from Canada and Mexico. The two countries also responded with threats of retaliatory tariffs, fueling speculation of a trade war in North America.
“In the medium term, we see much hinging on how AMLO will govern. Will he resort to the populist and confrontational stance taken at the start of the election campaign or revert to the more moderate and pragmatic style he displayed as mayor of Mexico City in the early 2000s?,” said BlackRock.
Related: Mexico ETF Plunges on Leftist Elected President
The peso is an important part of the Mexico investment thesis because exports account for over a third of GDP in Latin America’s second-largest economy. So are oil prices because Mexico is one of the largest non-OPEC producers in Latin America. However, oil output in Mexico is expected to decline this year. AMLO has said he respects the independence of Mexico's central bank.
“Either way, AMLO’s ascent heralds the end of decades of technocratic governments made up of traditional parties that pursued economically conservative policies. A majority in Congress would give AMLO leeway for making significant policy shifts. It could also lead to a steady decline in Mexico’s institutional strength, although we see the central bank’s independence as relatively resilient,” according to BlackRock.
For more information on the Mexican markets, visit our Mexico category.
POPULAR ARTICLES FROM ETFTRENDS.COM
