A Double-Edged Sword for This EM ETF

This year, the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), which holds broad range of companies in Mexico, has seen its fortunes largely tied to politics. U.S. politics that is and to be more specific, the presidential election.

Put simply, EWW, Mexican stocks and the peso have been rising in unison with Democratic challenger Hillary Clinton’s polls numbers and fall when it appears Republican contender Donald Trump has some momentum. Year-to-date, EWW is up 2.8%, a performance that significantly lags those of broader emerging markets and Latin America exchange traded funds.

SEE MORE: Emerging Market ETFs Win Clinton, Trump Debate

Conventional wisdom might dictate that EWW and Mexican stocks would be likely to rally should Clinton emerge victorious on Election Day, an outcome that is looking increasingly likely if recent polls numbers prove accurate. However, that rally could be short-lived and EWW could be left without a catalyst once Trump fades from the U.S. political scene.

“Unfortunately, investors who blinked during this rally have probably missed it. A Trump defeat is largely priced in, analysts and investors say, with Mexican assets returning to less-bullish drivers: depressed oil earnings, rising current-account deficits, high equity multiples, and a blazing hot streak for its main investment competitor, Brazil,” reports Craig Mellow for Barron’s.


Since EWW does not hedge currency risks, a strengthening peso currency would further bolster returns – an appreciating peso would translate to higher U.S. dollar-denominated returns. The peso has displayed an inverse correlation to Trumps poll numbers.