Peso Problems Could Plague the Mexico ETF

The iShares MSCI Mexico Capped ETF (NYSEArca: EWW) is up just 1.3% year-to-date, a lackluster performance relative to other Latin America exchange traded funds. Now, investors might need to fret about more peso weakness.

Last week, it was widely reported that professional traders are heavily short the Mexican currency and that is factoring in last week’s surprising interest rate hike by Mexico’s central bank. Still, Mexico’s interest rate are low, leaving the central bank there little wiggle room to reverse course and lower rates if Latin America’s second-largest economy flails.

Related: How Central Banks Affect LatAm ETFs

However, some market observers are enthusiastic about Mexico’s long-term prospects as the country aims to be home to one of the world’s 10 largest economies.

As an oil exporter, Mexico’s currency was previously dragged lower 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. Rather, EWW is heavily allocated to defensive sectors, such as consumer staples and telecom.


Mexico’s peso is expected to further weaken this year and “that is even before factoring in the possibility that Donald Trump wins the U.S. presidential election, according to Barclays Plc analyst Andres Jaime, the most accurate forecaster of the dollar-peso exchange rate over the past six months among 27 economists surveyed by Bloomberg,” reports Isabella Cota for Bloomberg.