Staying connected to other countries is generally a boon during years of prosperity. But Mexico is learning that its economy and related exchange traded fund (ETF) are now at the mercy of economic dips of its trading partners.
Around 80% of Mexico’s exports go to the United States, report Hugh Collins and Valerie Rota for Bloomberg. The Mexican economy is also heavily reliant on its non-oil export sector, and if that sector slows, then the economy comes to a crawl. In fact, both Standard & Poor’s and Fitch Ratings reduced the outlook on Mexico’s credit rating to BBB+, citing the government’s low tax revenue and dependence on crude oil exports.
President Felipe Calderon says Mexico’s economy contracted at an annualized 9% in the first quarter year-over-year, according to Trading Markets. The Central Bank calculates Mexico’s GDP will fall by 9.5% in the second half of 2009.
Calderon has pointed to the $4 billion in direct investment so far this year as a sign that investors favor Mexico’s lower production and logistics costs. He also expects Mexico to spearhead the recovery of the global automotive industry, noting that the auto sector represents 20% of Mexico’s GDP and supports 3 million households.
- iShares MSCI Mexico Investable Mkt Idx (EWW): up 23% year-to-date
- CurrencyShares Mexican Peso Trust (FXM): up 6.9% year-to-date
For more information on Mexico, visit our Mexico category.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.