Could a falloff in direct foreign investment to Mexico hurt the country’s exchange traded fund (ETF)?

The country’s economy ministry said that such investment fell 36% in the first quarter of this year, owing much to the slowdown in the United States, reports Adriana Barrera for Reuters.

For the full year, direct foreign investment is predicted to be 14% lower than it was in 2007.

On the flip side, Mexico seems to be gearing up for a housing boom, and perhaps it will help Home Depot (HD) offset any damage done by the gloomy U.S. market.

The Mexican government hopes to spur construction of 16 million new homes by 2030, reports Jeremy Schwartz for Cox News Service. Home Depot is the largest home improvement retailer in Mexico, with annual sales of more than $1 billion.

Home Depot rival Lowe’s (LOW) is feeling tempted by the promise of the Mexican market as well, and they plan to open three to five stores by 2009 in the city of Monterrey.

Despite recent slowdowns, Mexico has enjoyed a largely stable economy in the last decade, with relatively low inflation and an emerging middle class.

The iShares MSCI Mexico (EWW) is one way to capture this emerging economy. It’s up 9.9% year-to-date. Exposure to Mexico can also be had in a broader-based fund, such as the Latin America Discovery Fund (LDF), which is a closed-end fund (CEF). It’s up 13.7% year-to-date and contains 27.5% exposure to Mexico.

Tags: Bond ETFs, Emerging Markets, Latin America, Mexico, Real Estate