The iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest US-listed ETF dedicated to Mexican equities, is up just 4.42% this year, less than half the returns offered by the MSCI Emerging Markets Index and political volatility is one reason why Mexican stocks are lagging.

Political unrest ensued in Mexico as the unexpected resignation of Mexico’s Minister of Finance Carlos Urzúa had its toll on Mexican assets following the news. Mexico President Andrés Manuel Lopez Obrador (AMLO) cited disagreements over “development plans for Mexico” as the reason.

While AMLO was hailed as a champion of the people and wasn’t seen as a major threat to Mexico’s financial markets, global investors remain divided over his ability to steer Latin America’s second-largest economy.

“Mexico bulls hope for a repeat of his tenure as mayor of Mexico City when he tempered leftist rhetoric with tight purse strings and a pragmatic stance toward business,” reports Craig Mellow for Barron’s.

Trump’s Trade Relationship Status

Earlier this year, President Trump took to Twitter to say that if Mexico agreed to up purchases of agriculture commodities from U.S. farmers, the tariffs could be averted. Trump originally floated the idea of tariffs on Mexico if the country did not step up to help with the immigration crisis.

Mexico is the United States’ third largest trading partner and is the second largest exporter of electronics to the United States. The U.S. is the largest export partner for Mexico, consuming about 80% of Mexican-made goods.

“Optimists also see tailwinds gathering for Mexico’s economy. Externally, the U.S. Congress is tilting toward ratifying the United States-Mexico-Canada Agreement. Internally, inflation near record lows leaves Mexico’s central bank room for more stimulative interest-rate cuts. Analysts expect a drop to 6% from the current 7.5%,” according to Barron’s.

EWW seeks to track 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.

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.

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