The Mexico country-specific exchange traded fund could be slowing as declining oil revenue and declining business confidence drag on the economy.
The iShares MSCI Mexico Capped ETF (NYSEArca: EWW) has dipped 1.8% year-to-date and fell 2.4% over the past year. Alternatively, the db X-trackers MSCI Mexico Hedged Equity Fund (NYSEArca: DBMX), which hedges against a depreciating peso, pulled back 0.9% year-to-date and rose 8.7% over the past year.
Mexico’s economy is expected to expand a downwardly revised 3.08% this year, compared to an estimated 3.29% a month ago and 3.85% in August, reports Bredan Case for Bloomberg.
The more tempered outlook comes in response to the 50% plunge in oil prices. Finance Minister Luis Videgaray warned that low oil prices could force the government to keep tightening fiscal policies after an spending cut announced in January.
Furthermore, widespread protests over the disappearance and potential deaths of 43 college students and the home-purchase scandals are also weighing on investor confidence.
“Recent domestic developments involving widely reported acts of violence, allegations of official corruption, low oil price environment, and the sluggish performance of the economy may have started to dent confidence indicators,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., said. “This may turn consumers and businesses more defensive and potentially handicap the pace of the ongoing economic recovery.”
The turn in sentiment has more or less soured the prospects of an economic boom fostered by reforms. For instance, Luis Videgaray, the finance minister, argues that while the reforms could take some time to bear fruit, they could add 1.5 to 2 percentage points to growth, the Financial Times reports. With the country’s attention on corruption and lack of rule, observers are wary about the government’s ability to implement their proposed economic reforms.
For instance, the business confidence in retail and construction industries declined last month. An index of manufacturing confidence dropped to its lowest since February 2010.
iShares MSCI Mexico Capped ETF
For more information on Mexico, visit our Mexico category.
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. 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.