It is starting to sound like a broken record, but it is still accurate to say 2014 has been harsh to emerging markets exchange traded funds.
As has been the case for most of this year, the 10 worst non-leveraged ETFs entering Wednesday’s trading session were all emerging markets funds. And has also been the case for the bulk of the year, a fair amount of that 10 worst list are ETFs with exposure to Latin America. [Commodities Pressure LatAm ETFs]
To be precise, five of those 10 ETFs are Latin America ETFs, four of which are single-country funds. One of those four is the iShares MSCI Mexico Capped ETF (EWW).
There are six single-country ETFs providing exposure to Latin American nations, but only the Global X FTSE Colombia 20 ETF (GXG) has been worse than EWW this year. Another way of looking at the situation is that EWW has been worse than the downtrodden iShares MSCI Brazil Capped ETF (EWZ) and the iShares MSCI Chile Capped ETF (ECH) , the latter of which often sees its price action controlled by Chinese commodities demand. [Upgrades Not Helping Mexico ETF]
With Wednesday’s loss of 1.6%, EWW is down 9.4% year-to-date and trading at its lowest levels since June 2013. On a technical basis, there is little to be positive about as the lone Mexico ETF resides 7.2% below its 200-day moving average and 6.9% below its 50-day line. It has been over a month since EWW closed above either of those moving averages and the ETF is dangerously flirting with support at $60, a level that if violated would likely bring its June 2013 lows into play.
Making matters worse for EWW is that its fundamental backdrop is arguably not nearly as bad as those for rival Latin America ETFs, but the ETF has not responded in kind. Mexico initiated political and energy sector reforms last year and is expected to post GDP growth superior to that of the U.S. this year. Mexico is also a major silver producers and EWW has a 17.6% weight to the materials sector, but the ETF has received no benefit from the iShares Silver Trust (SLV) gaining 9.3% this year. [No Gusta on the Mexico ETF]
Earlier this month, Moody’s Investors Service raised Mexico’s credit rating to A3, or upper medium investment grade and one rung higher than at Fitch Ratings and Standard & Poor’s, but since Feb. 5, EWW is off nearly 3%.
iShares MSCI Mexico Capped ETF
Tom Lydon’s clients own shares of SLV.