Peso Problems for the Mexico ETF

The iShares MSCI Mexico Capped ETF (NYSEArca: EWW) is down 5.4% this year as the lone dedicated Mexico exchange traded fund has been pressured by the slumping peso, prompting investors to make EWW the worst Latin America single-country ETF in terms of lost assets to start 2016.

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.

According to JPMorgan Asset management, Colombia and Mexico are now members of the so-called fragile five group of emerging markets, edging out Brazil and India, reports Steven Johnson for the Financial Times.

However, there are reasons to believe that Mexico could be perhaps the most reliable Latin American investment destination in 2016.

“Data show Mexico’s private consumption fell by a seasonally-adjusted 0.2% month-over-month in November, implying the annual rate of change slowed. But using data not adjusted for seasonal factors, private consumption increased 3.9% year over year as expected, and that was the fastest rate in five months,” reports Dimitra DeFotis for Barron’s, citing Citigroup research.