Related: Marveling at the Mexico ETF, Up 27% YTD
However, speculation is swirling about the U.S. and its place in NAFTA with some market observers assessing the possibility of the U.S. withdrawing from the free trade accord. That move is potentially devastating for Mexico’s economy.
“If the U.S. withdrew from NAFTA, the Mexican economy would face significant uncertainty, which would likely lead to an immediate confidence shock and short-term market volatility,” according to Fitch. “Growth would slow through the medium term, from an already modest base, as the initial disruption would likely result in lower investment and trade dislocations with potentially sustained effects on consumer confidence. It would also act as a negative productivity shock affecting potential growth rates through the medium- and long-term. NAFTA abrogation would mean defaulting to World Trade Organization (WTO) rules; however, WTO rules are not as comprehensive, and tariffs could rise on certain Mexican export sectors.”
EWW allocates almost a quarter of its weight to consumer staples with telecom and financial services names combining for nearly a third of the ETF’s weight.
For more information on the Mexican markets, visit our Mexico category.