Buoyed by bounces for oil and industrial metals prices, exchange traded funds tracking several Latin American economies have recently rebounded.
For example, some investors seem to be buying into the notion that the worst is behind Petrobras (NYSE: PBR), Brazil’s state-run oil company, as the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has surged 9% over the past month. [Leveraged Brazil ETF Perks Up]
Rebounding copper prices have helped push the iShares MSCI Chile Capped ETF (NYSEArca: ECH), the lone ETF dedicated to tracking equities in the world’s largest copper-producing country, higher by nearly 3% over the past month while the iShares Latin American 40 ETF (NYSEArca: ILF) is higher by almost 4% over that period. [Commodity Exporter Country ETFs Rebound]
A standout for all the wrong reasons among Latin America single-country ETFs has been the iShares MSCI Mexico Capped ETF (NYSEArca: EWW). While other Latin America ETFs have been solid performers in recent weeks, EWW has been a notable laggard, tumbling 3.5% over the past 30 days.
“I do not see any reason to be long this market. I think opportunity cost is probably a huge risk here as there are clearly much better places to be. I think the only thing that can make me bullish Mexico is time. We want to see this 200 day moving average start to slope up and Mexico put in some work relative to other markets. I would continue to stay away on the long side and look elsewhere instead,” notes J.C. Parets of Eagle Bay Capital.
As Parets highlights in the chart featured at the end of this piece, the EWW/SPDR S&P 500 ETF (NYSEArca: SPY) is a mess.
“Not only has this ratio broken down below the uptrend line from the 2006 lows, but towards the end of last year also broke the uptrend line going back to the 1998 lows. Not good at all,” according to Parets.
Fundamentally speaking, EWW’s laggard status is startling because Mexico is a major producer of oil and industrial metals, the very catalysts boosting rival ETFs, such as ECH, EWZ and the iShares MSCI All Peru Capped ETF (NYSEArca: EPU).
However, EWW offers scant leverage to those themes. The materials sector is 13.7% of EWW’s weight, making the ETF’s fourth-largest sector weight, but the fund has no direct energy sector exposure despite the fact that Mexico is one of the largest non-OPEC oil producers in the world.
EWW/SPY Ratio
Chart Courtesy: J.C. Parets, Eagle Bay Capital