“Our strategy recommendation: overweight staples and financials and underweight the rest of the market. Risks to our bearish view include strengthening of the Mexican Peso, commodity prices rebounding and acceleration of economic growth,” Barron’s reports, citing UBS.
Mexico is at risk as its reserve coverage ratio, or foreign exchange reserves divided by its funding gap, is just 1.6 years, which is less than the seven years of Russia, another oil exporter. Additionally, Mexico is constrained by its near-zero real interest rate, leaving little room to cut rates if its economy weakens.
As an oil exporter, Mexico’s currency has been hit by the falling crude oil prices – ETF investors should keep in mind that while Mexico has a large oil industry, none of the country-specific ETFs include exposure to the sector.
iShares MSCI Mexico Capped ETF
