Traders looking for opportunities outside the U.S. may want to consider giving Mexico a closer look. The country beat its growth forecast for a third straight quarter, opening pathways for traders to capitalize on its economic strength.
Mexico is accomplishing this despite global inflation fears and a stronger dollar. This strengthens the case for looking outside the U.S. and, in this particular case, looking to emerging markets where certain countries may be bucking the trend of slower global growth as recession fears loom worldwide.
“Mexico’s economy expanded 1% between April and June from the prior three month period, beating forecasts and marking the third consecutive quarter of growth, a preliminary estimate from national statistics agency INEGI showed on Friday (July 29),” Reuters reported.
“Gross domestic product (GDP) had been expected to expand 0.8% in seasonally-adjusted terms in the second quarter, a Reuters poll of analysts found earlier this week,” Reuters added.
While the near-term outlook appears bright, the long-term outlook could paint a different picture. As in the case of investing overseas, economic cycles can vary from country to country.
Global Risks Remain
Traders looking to play off the strength in the short term can consider Mexico-focused exchange traded funds (ETFs). For added leverage, one fund to consider is the Direxion Daily MSCI Mexico Bull 3X Shares (MEXX).
With its triple leverage ability, MEXX seeks daily investment results, before fees and expenses, of 300% of the daily performance of the MSCI Mexico IMI 25/50 Index. The fund invests at least 80% of its net assets in financial instruments, such as swap agreements, securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
With the added leverage comes added risk. Mexico isn’t immune to the global challenges affecting the rest of the world, so traders will need to strategize accordingly in order to mitigate heavy losses.
“The big picture is that weakness in the U.S. and tight policy at home will weigh on growth over the coming quarters and Mexico’s recovery will continue to lag behind those in the rest of Latin America,” noted analysts at Capital Economics.
Inflation fears in the U.S. have morphed into recession fears, which should spill over into Mexico. As such, growth prospects for the long-term horizon shouldn’t be met with too much optimism.
“U.S. external demand continues to boost manufacturing but an increasing likelihood of a U.S. recession remains a key risk for Mexico’s growth prospects,” said Fitch director Carlos Morales.
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