As U.S.-Mexico border tensions escalate, the momentum of Mexico-focused exchange-traded funds (ETFs) like the iShares MSCI Mexico Capped ETF (NYSEArca: EWW) and Direxion Daily MSCI Mexico Bull 3X ShsETF (NYSEArca: MEXX) have become tenuous the past month as the country’s newest president is set to take office.
Andrés Manuel López Obrador, typically referred to as AMLO for short, will begin his six-year term as Mexico’s new president on Saturday, December 1. AMLO will inherit a host of issues to fix, but as the country faces an influx of migrants from Central America who have congregated near the U.S.-Mexico border in Tijuana, this latest development has come to the forefront of his expansive task list.
EWW tracks the investment results of the MSCI Mexico IMI 25/50 Index, which is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of the underlying index weight, and all issuers with a weight above 5% do not cumulatively exceed 50% of the underlying index weight. MEXX tracks the same index, but provides investors with 300% leverage.
EWW has fallen about 10% within the past month, while MEXX has fallen 30% with thrice the leverage. However, how Lopez-Obrador handles the U.S.-Mexico border situation will most certainly weigh heavily on the performance of these ETFs going forward.
New Mexico President Will Face Baptism by Fire
Mexico’s recent change in leadership saw the controversial leftist candidate AMLO become its next president. Much like U.S. President Donald Trump, Obrador’s election sparked controversy, but public opinion may be swaying towards his side as the LA Times reported that “little more than a week he has gone from being denounced as a looming threat to stability, a Mexican incarnation of the late Venezuelan leftist firebrand Hugo Chavez, to being the darling of Mexico.”
That relationship with the very individual he was compared to prior to his election will be tested as U.S.-Mexico relations regarding the border situation have reached stratospheric levels in terms of media attention. With President Trump coming under fire as images of U.S. border patrol agents teargassing migrant women and children flooded media outlets, the situation has become only more tense.
“They’re not coming into the United States. They will not be coming into our country,” Trump said of the border situation, noting that such means weren’t used on children, but his political opponents think otherwise.
In the meantime, the number of migrants heading into Mexico from Central American countries like Honduras continues to multiply exponentially as they attempt to seek asylum within the United States. In the meantime, the number of those applying for asylum legally outweighs the number of immigration officials that can process the requests, causing a situation in Mexico where the country could be overrun by overcrowded migrant camps and shelters.
“The Mexican government is in a dead-end alley,” said Raúl Benítez Manaut, a professor of international relations at the National Autonomous University of Mexico. “López Obrador is facing a baptism of fire, and a dilemma of whether he should maintain his promises of humanitarian policies, or stop the masses of migrants trying to reach the U.S.”
Prior to his election victory, AMLO was a proponent of protecting the poor and it will be interesting to see if his agenda that earned him the trust of Mexican voters will continue as he takes office on Saturday, and whether he carries this same agenda into tackling the migrant situation.
Pentagon’s Deployment of Troops Becomes Rotational
In the latest development, U.S. troops have been deployed to dampen the fracas at the border, which will become a rotational force–the mission to secure the border will purportedly be extended as a fresh batch of troops are rotated into the fold on an ongoing basis. The recently-deployed troops were expected to stay until December 15, but other news outlets are saying that defense officials are lobbying to extend that deadline as border situation unfolds.
The Trump administration has already deployed almost 6,000 troops to the U.S.-Mexico border in addition to over 2,000 National Guard personnel.
I think that it’s very clear that support [for]the border police — or Border Patrol is necessary right now,” said Defense Secretary Jim Mattis.
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