The iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest ETF dedicated to Mexican equities, is up nearly 5% this year and more gains could be on the way for benchmark Mexico ETF if seasonal patterns hold true to form.
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.
EWW “has endured a rockier year than most other funds, amid concerns that President Trump will pull out of NAFTA. After topping out at a two-year high of $57.82 in late August, EWW staged a retreat, ultimately finding support in the $48 area — a 61.8% Fibonacci retracement of the fund’s 2017 low to high,” according to Schaeffer’s Investment Research.
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. Historical data indicate the time is right to consider EWW.
“Although uncertainty about NAFTA is still in the air, it’s worth noting that the Mexico-centered ETF tends to rally in a big way in March. The fund has averaged a monthly gain of 5.1% since inception — more than double the second-best month of the year (December). That’s followed by an average April gain of 1.9%,” reports Schaeffer’s.
The peso is an important part of the Mexico investment thesis because exports account for over a third of GDP in Latin America’s second-largest economy. So are oil prices because Mexico is one of the largest non-OPEC producers in Latin America.
Still, perhaps due in large part to its proximity to the the U.S., Mexico is often viewed as one of the safer emerging markets for investors, but Mexico’s central bank raised interest rates recently and is expected to do more of the same this year.
Year-to-date, investors have pulled nearly $140 million from EWW.
For more information on the Mexican markets, visit our Mexico category.