The Dow Jones Industrial Average closed almost 300 points higher on hopes that U.S. President Donald Trump will delay tariffs on Mexico as both sides try to hash out their differences on immigration issues. This could put certain Latin American exchange-traded funds in play for traders looking for a side to play on this latest news.
After a deal with China went under, the Trump administration turned their attention to Mexico in the latest tariff wars by announcing a 5 percent tariff on all Mexican imports, which will begin on June 10. The move came as Trump urged Mexico to “reduce or eliminate the number of illegal aliens” entering the U.S.
“If the illegal migration crisis is alleviated through effective actions taken by Mexico, to be determined in our sole discretion and judgment, the Tariffs will be removed. If the crisis persists, however, the Tariffs will be raised to 10 percent on July 1, 2019,” the White House said.
“Tariffs will be increased to 15 percent on August 1, 2019, to 20 percent on September 1, 2019, and to 25 percent on October 1, 2019,” it added. “Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory.”
Latin America ETFs in Play
The U.S.-China trade impasse paved the way for discounts in a lot of U.S. equities, but it also put the red tag sale in the emerging markets (EM) space. With this latest move against Mexico, one corner of EM that investors may not have considered is within Latin America.
While most investors might have been driven away by the losses in EM during much of 2018, savvy investors who were quick to see the opportunity viewed EM as a substantial markdown. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays as capital inflows continue in 2019.
EM can also provide opportunities for dividend-seeking investors. Latin America, once again, could be an alternative investors may not have yet taken into consideration.
“While substantial literature exists on dividend investing in developed markets, there is little research on emerging market dividend strategies, in particular for Latin America,” wrote Analyst, Global Research & Design at S&P Dow Jones Indices. “S&P Dow Jones Indices surveyed the emerging market dividend payers in 2014 and found that Latin America constituted about 19% of the total global dividend payers. As such, Latin American markets are capable of supporting dividend-based strategies.”
“In countries like Brazil, Mexico, Chile, and Peru, benchmark providers already offer passive dividend indices as a way to measure performance and provide exposure to dividend-paying stocks,” Anguiano added.
For a Latin America-specific ETF trade, consider the Direxion Daily Latin America Bull 3X ETF (NYSEArca: LBJ). LBJ seeks daily investment results equal to 300% of the daily performance of the S&P Latin America 40 Index. The index itself is a float-adjusted market capitalization weighted equity index of issuers drawn from five major Latin American markets: Brazil, Chile, Columbia, Mexico, and Perú.
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