Mexico ETF Looks for Central Bank Support

As has been widely documented, the iShares MSCI Mexico Capped ETF (NYSEArca: EWW) has been under significant pressure following Donald Trump’s victory in the U.S. presidential election last month.

EWW, the largest ETF tracking stocks in Latin America’s second-largest economy, has plunged since Election Day as investors have fretted that Trump will move forward with plans to build a wall around the U.S./Mexico border while possibly looking to unwind the North American Free Trade Agreement (NAFTA).

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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.

Throw the notion of Mexico not being in tightening cycle out the window as the central bank surprised market observers with another rate hike of 50 basis points last week in a bid to shore up the peso, which has sagged since U.S. Election Day.