The iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest ETF dedicated to Mexican equities, is lower by about 4.6% over the past month and negotiations surrounding the North American Free Trade Agreement (NAFTA) are seen as weighing on Mexican stocks.
In June, the U.S. and Mexico reached an accord to end disputes over the sugar trade between the two countries. Some investors believe Mexican stocks still offer value, particularly for investors willing to be patient with EWW. Mexico is Latin America’s second-largest economy behind Brazil. The good news for investors consider EWW is that President Trump, to some extent, has back-pedaled from some of his harsher campaign rhetoric aimed at Mexico.
“The U.S. is frustrated with what it perceives to be the reluctance of Canada and Mexico to present counter-proposals to U.S. positions on key issues such as regional content requirements and dispute settlement, said a person close to the negotiations,” reports Bloomberg. “American officials are especially discouraged by Canada for publicly stating that the U.S. proposals are unacceptable, without presenting alternatives at the negotiating table, said the person, who spoke on condition of anonymity.”
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.
“Progress was slow over the weekend. While hundreds of hours of talks are unfolding on issues ranging from car manufacturing to telecommunications, negotiators have punted decisions on the most divisive issues to future rounds,” according to Bloomberg. “The three countries have extended the deadline for the talks to March, when they could be complicated by elections in Mexico and U.S. midterms.”
Even with its recent slump, EWW is up 14% year-to-date, but that is less than half the gain posted by the MSCI Emerging Markets Index. Investors have pulled nearly $937 million from EWW this year.
For more information on the Mexican markets, visit our Mexico category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.