Mexico ETF Tries to get its Groove Back

In a year of strength for emerging markets equities, the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest ETF tracking stocks in Latin America’s second-largest economy, has been a relative laggard this year when measured against other single-country Latin America ETFs.

However, Mexican stocks and EWW are showing signs of snapping out of that slump. Poll numbers showing Democratic nominee Hillary Clinton pulling away from Republican challenger Donald Trump in the race for the White House are an obvious catalyst for EWW. Over the past month, the Mexico ETF is higher by more than 5%.

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Investors mulling positions in EWW should be mindful of Mexico’s central bank and its plans for interest rates.

Although Mexico’s central bank said the first rate hike earlier this year was not the start of a new tightening cycle, the central bank surprised global investors Thursday when it boosted borrowing costs by 50 basis points to 4.75%, which is good for the country’s highest interest rate since 2009.

With Mexico’s economy showing signs of lethargy, investors were likely caught off guard by the rate hike as many market observers were expecting Mexico’s central bank to hold off on monetary policy changes until after the U.S. presidential election in November. Republican nominee Donald Trump is, in the eyes of some market observers, a potential negative for the Mexican peso.