By now, many investors know that the iShares MSCI Mexico Capped ETF (NYSEArca: EWW) is one of 2016’s worst-performing single-country emerging markets exchange traded funds. EWW is down 11.3% year-to-date and much of the blame for that slide is blamed on the result of November’s U.S. presidential election.
Since Nov. 9, the first trading day after Election Day, EWW is lower by 9.1%, a loss that is more than double that of the MSCI Emerging Markets Index over the same period. 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).
With the peso also sliding in the wake of Trump’s win, the Mexico’s central bank could move forward with more rate hikes to stem the currency’s slide. 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 last month when it boosted borrowing costs by 50 basis points to 4.75%, which is good for the country’s highest interest rate since 2009.
However, some investors believe Mexican stocks still offer value, particularly for investors willing to be patient with EWW.
“Trump has already begun to back pedal some of his rhetoric on the wall and tariffs. He has also made some efforts towards economic diplomacy with Mexican leaders and business people,” according to a Seeking Alpha analysis of EWW. “If EWW only retraces half way back to its March 2013 highs, that would be a 35% gain from its current price (not including its current 3% dividend yield).”
Investors who believe the Mexican peso may continue to depreciate but anticipate the markets will improve can look to currency-hedged ETF strategies to diminish the currency risks. For instance, the db X-trackers MSCI Mexico Hedged Equity Fund (NYSEArca: DBMX) and the recently launched iShares Currency Hedged MSCI Mexico (NYSEArca: HEWW) provide exposure to the Mexico’s market without the added currency risk of a depreciating peso currency.
“The long-term investor would be wise to consider putting some of their foreign, international, or emerging markets funds to work in Mexico now or in the near future. The value investor should consider the expectancy investment opportunity that lies within the Mexico ETF,” adds Seeking Alpha.
For more information on the Mexico ETF market, visit our Mexico category.