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Trying Times for Mexico ETF

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This article was originally published on ETFTrends.com.

Stocks in Mexico, Latin America's second-largest economy, are struggling. The iShares MSCI Mexico Capped ETF (EWW) , the largest exchange traded fund dedicated to Mexican equities, is lower by more than 8% this year compared to a year-to-date loss of less than 1% for the MSCI Emerging Markets Index.

Rising political volatility ahead of Mexico's national election next month and lingering concerns about the fate of the North American Free Trade Agreement (NAFTA) are among the factors hindering EWW and Mexican stocks.

“Presidential candidate Andrés Manuel López Obrador, a leftist nationalist known as AMLO, is leading polls ahead of the July vote,” reports Gerrard Cowan for the Wall Street Journal. “His election could further spook investors, depending on the economic policy he implements and the impact of his election on already strained relations with the U.S., says Neena Mishra, director of ETF research at Zacks Investment Research.”

Trade Talk & Mexico's Economy

Speculation is swirling about the U.S. and its place in NAFTA with some market observers assessing the possibility of the U.S. withdrawing from the free trade accord. That move is potentially devastating for Mexico’s economy.

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.

Related: Mexico ETF Dragged Down by Political Risk, Trade War Fears

Still, there could be opportunities with EWW. Citing Tushar Yadava, an iShares investment strategist, the Journal reports, “Mexican stocks traditionally have traded at a premium to those of other Latin American countries, he says, so any downturn could provide opportunities for those willing to hold on for the long term. Still, he believes there could well be some way to go before the Mexican market bottoms out.”

On the other hand, EWW's recent decline has been precipitous. Heading into Monday, EWW had shed 13.4% over the past month, sending the ETF slightly below its 50- and 200-day moving averages. Investors have pulled $41.71 million from EWW this year.

For more information on the Mexican markets, visit our Mexico category.

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