Famous contrarian Dr. Marc Faber, author of the
Gloom, Boom and Doom Report,
recently sat down with Bloomberg news to give his current views on
the global economy.
Dr. Faber remains bullish on gold and silver and he anticipates
a huge spike in U.S. inflation - nothing new there. However, I was
quite surprised to see how bullish he is on the Mexican economy.
***According to Dr. Faber, Mexico, the thirteenth largest
economy in the world, is largely misunderstood. Most investors
seeking emerging market exposure focus on the BRIC countries. But
as Faber points out, Mexico is one of the world's largest
developing economies as measured by GDP. On a per capita basis, the
Mexican economy is larger than China, India and Brazil.
It is true that our neighbors to the south are coming back from
one of the country's worst recessions on record. Reports of upward
revisions in growth could translate into the potential for a good
Dr. Faber seems to think so. He continues to be pleasantly
surprised by how well the Mexican economy is doing and he thinks it
will continue to outperform most emerging markets over the
long-term. The following chart from Bloomberg shows Mexico's
His reasoning is as follows; ten years ago Mexican wage rates
were 270 percent greater than China's. Now Mexico's wages are only
45 percent higher than China's, and they are trending lower. What
this means is that over the next 5-10 years we could see Mexico
take over the manufacturing prowess that China currently holds,
particularly with Mexico's close proximity to the United States. In
theory, as the Mexican wage rate trends lower in comparison to
China's, Mexico will attract more manufacturing jobs - thereby
growing its middle-class and its economy.
If Dr. Faber is correct, and the Mexican economy is going to
outperform the majority of global markets, investors want to have
their portfolio's positioned accordingly. How can small cap
investors take advantage of the opportunity?
***Look no further than the Global X Mexico Small Cap ETF (
). The ETF was appropriately launched on 'Cinco de Mayo' (Mexicans
recognize their army's unlikely defeat of the French at the Battle
of Puebla in 1862 on this day) of this past year. It is the first
ETF to target Mexican small-cap companies and provides an excellent
opportunity to play Mexico's ongoing domestic growth story.
With only 28 holdings and seventy-two percent of the holdings
heavily weighted towards consumer discretionaries, industrials and
consumer staples, this ETF offers a targeted approach to the
country's local economy.
There are a couple of drawbacks to the MEXS however. While I
like the idea of investing in Mexico's growing economy, I am a bit
concerned by the low average volume and market capitalization of
the ETF. It has an average volume of only 4,013 shares a day.
However, given the potential long-term growth prospects in Mexico,
I do not want to miss out on what I think is an excellent
Therefore, until more volume moves into MEXS I would opt to
invest in the first Mexican ETF, iShares MSCI Mexico Investable
Market Index Fund (
). The fund was launched over 15 years ago and uses a mix of small,
mid and large-cap stocks. More importantly the average volume is
over two million.
So as much as I would like to invest in Mexican small caps, I
always steer clear from low-volume ETFs until they pick up in
popularity with investors. Low-volume ETFs have a greater risk of
being folded by the fund provider, and if this small cap ETF
doesn't catch on soon, I could see it having a similar fate.
Again, I would prefer move into EWW to take advantage of the
Mexican economy and patiently sit on the sidelines, keeping a close
eye on the volume to take a position in MEXS.