ETF Trends
ETF Trends

Scores of single-country exchange traded funds are being affected by central bank policies this year. Count the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest ETF tracking stocks in Latin America’s second-largest economy, among that group.

Earlier this year, Mexico’s central bank surprisingly raised interest rates in a bid to halt the peso’s slide, a decline that was worsened by Brexit. 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.

Related: How Central Banks Affect LatAm ETFs

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.

With Mexico’s economy showing signs of lethargy, investors should not expect another rate hike in the near-term. In fact, the central bank there said the rate hike earlier this year probably would not be the start of an overt hawkish cycle.

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“The economy is slowing down. In fact, we recently lowered our GDP forecasts for this and next year. Mexico’s growth is decelerating and it is now expanding below potential growth (which we estimate to be between 2.5% and 3.0%). The preliminary Q2 GDP quarterly number was negative for the second time since only 2009, heralding the possibility of economic deceleration,” according to a Nomura note posted by Johanna Bennett of Barron’s.

EWW is struggling while some other single-country Latin America ETFs are roaring higher. For example, the iShares MSCI All Peru Capped ETF (NYSEArca: EPU) is this year’s best-performing single-country ETF while the Global X MSCI Argentina ETF (NYSEArca: ARGT) tracks stocks in one of the world’s best-performing equity markets. The iShares MSCI Chile Capped ETF (NYSEArca: ECH) has also been an impressive performer.

Related: The Best LatAm ETFs

“Headwinds to growth include weakness in the manufacturing sectors linked to the US economy and a deceleration in domestic consumption, which as of late has been the main engine of growth for the economy. We have revised our GDP growth forecast to 2.1% y-o-y in 2016 (from 2.8%) and to 2.5% y-o-y in 2017 (from 3.0%). See Global Economic Monthly – Politics in the front seat, published on 9 August 2016,” said Nomura in the note posted by Barron’s.

For more information on the Mexico ETF market, visit our Mexico category.

iShares MSCI Mexico Capped ETF

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.