While the emerging markets have been languishing in a risk-off environment fueled by trade war concerns, the Mexico country-specific ETF has been enjoying a strong run.
Over the past month, the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest exchange traded fund dedicated to Mexican equities, increased 13.5%, compared to the 3.3% decline in the MSCI Emerging Market Index.
Ever since the run up to the elections in Mexico City that led to leftist candidate Andres Manuel Lopez Obrador, known as AMLO, winning the presidency, Mexican equities have been rallying.
Observers were originally wary that the far left President could push for tougher negotiations between Mexico, the U.S. and Canada under a new NAFTA deal in a time when trade relations are worsening. However, he has since sought to ease investors’ concerns.
Carlos Urzua, López Obrador’s pick for finance minister, has pledged to safeguard the central bank’s independence, keep the country’s floating exchange rate regime and exercise fiscal discipline, reports Pan Kwan Yuk for the Financial Times.
Additionally, the appointment of former Mexico City mayor Marcelo Ebrard as foreign minister was also widely received as a promising signal given the importance of US-Mexico relations to the economy.
Investor Interest Returns to Mexico
Consequently, more are turning back into the beleaguered market. Actinver SA analyst Enrique Mendoza pointed out that the stocks that most benefited are those that saw sharp drops earlier in the year and look attractive for returning funds, reports Andrea Navarro for Bloomberg.
“Capital is returning to the stock exchange and it’s picking names that had been too castigated,” Mendoza told Bloomberg. “Gentera had been crashing and stabilized in the past few months, making for a very low valuation.”
Morgan Stanley has even upgraded the Mexican market to “overweight” as it looks attractive in absolute and relative terms. The analysts also argued that the Mexican economy continues to expand at a moderate pace and the outlook for corporate earnings growth in 2018-2019 remains strong.
For more information on the Mexican markets, visit our Mexico category.