Up almost 16% year-to-date, the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest exchange traded fund dedicated to Mexican equities, is defying the post-US election conventional wisdom that a Trump Administration would be a negative for Mexico’s financial markets.

EWW is outpacing the MSCI Emerging Markets Index by about 400 basis points and is one of the best-performing ETFs tracking a Latin American market. Mexico is Latin America’s second-largest economy behind Brazil.

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. Mexico is Latin America’s second-largest economy behind Brazil. The good news for investors consider EWW is that President Trump, to some extent, has back-pedaled from some of his harsher campaign rhetoric aimed at Mexico.

“The Mexican equity market itself has been tracking rather closely with greater Latin America in general as the largest broad based Latin America fun, also from iShares, ILF (iShares Latin America 40, Expense Ratio 0.49%, $1.1 billion in AUM) is only out-performing EWW head-to-head in the trailing six month period by a little more than 200 basis points. On the other hand, year-to-date thanks to a recent run, EWW has reversed that performance gap and is out-performing ILF by over 200 basis points,” according to ETF Daily News.

The peso is an important part of the Mexico investment thesis because exports account for over a third of GDP in Latin America’s second-largest economy. So are oil prices because Mexico is one of the largest non-OPEC producers in Latin America.

It is expected the Trump Administration and officials from Mexico will begin negotiations on adjustments to the North American Free Trade Agreement (NAFTA) later this year. That could provide another catalyst for EWW and Mexican stocks if the White House backs off a heavy-handed approach to the U.S. trade relationship with Mexico.

For more information on the Mexican markets, visit our Mexico category.

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.

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