Shares of the iShares MSCI Mexico Capped Investable Market
Index Fund (NYSE:
EWW
), the lone ETF exclusively devoted to Latin America's
second-largest economy, are trading lower by 1.3 percent in early
trading Wednesday and the catalyst behind EWW's drop is easy to
spot.
The U.S.-listed shares of America Movil (NYSE:
AMX
) are off nearly nine percent on volume that is nearly double the
daily average after the company reported an 8.2 percent drop in
fourth-quarter profit. America Movil, Latin America's largest
mobile phone carrier, said revenue for the quarter was hampered
by currency weakness outside of Mexico.
The company, owned by the world's richest man, Carlos Slim,
reported fourth-quarter net income of just $1.16 billion, well
below the $1.89 billion analysts expected. News of the glum
results has taken America Movil's U.S. shares to a new 52-week
low and prompted
Bank of America Merrill Lynch to downgrade the
stock to Neutral from Buy
.
All of this ties back to EWW because the fund features a not
uncommon flaw in the world of
ETFs
. That being
an excessive weight to just one stock
. In the case of EWW, which has $2.32 billion in assets under
management, the fund devotes 21.55 percent of its weight to
America Movil.
Today's decline for EWW at the hands of America Movil is not
the first time the ETF has had to contend with glum news from one
of its marquee constituents. In April 2012, the ETF endured some
short-term pain after it was revealed Wal-Mart's (NYSE:
WMT
) its Wal-Mart de Mexico business would be investigated on
bribery allegations. At the time, Wal-Mart de Mexico was EWW's
second-largest holding with an allocation of
about 11.6 percent
.
While there are never any guarantees history will repeat, it
is interesting to note that investors with fortitude to have
bought EWW on the first trading after the Wal-Mart bribery
allegations were brought to light, April 23, 2012, have been
handsomely rewarded as the ETF jumped more than 21 percent since
that day through February 12. Of course, it cannot be forgotten
that EWW was about 10 percent lower a month later, so caution is
advised in the wake of EWW dealing with America Movil's slack
earnings profit.
Still, it is worth noting that EWW is up nearly 20 percent in
the past year, sharply outpacing the broader emerging markets
universe as measured by the iShares MSCI Emerging Markets Index
Fund (NYSE:
EEM
) along the way. Year-to-date, EWW has outperformed the
comparable Brazil and Peru ETFs.
Wednesday's decline has EWW hovering around its 50-day moving
average and should that technical landmark provide support, it
could represent a buying opportunity in the ETF as investors
again embrace Mexico's buoyant fundamental story.
That story includes expectations solid GDP growth this year
and the fact that the economy there has already been benefiting
from an influx of manufacturing jobs from China. Rising wages in
China have sent some manufacturing jobs to Mexico and due to
higher fuel prices, some U.S. firms have favored production of
goods in Mexico over China due to the former's proximity to the
U.S.
For more on Mexico, click
here
.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Gain access to more investing ideas, tools & education.
Get Started on Marketfy, the first ever curated
& verified Marketplace for everything trading.