Prior to a recent pullback that has seen the ETF lose nearly
six percent in the past month, the iShares MSCI Mexico Investable
Market Index Fund (NYSE:
) had been one of the best-performing country-specific
in 2012. Recent political action out of Mexico could mean EWW's
retrenchment is a buying opportunity for patient investors.
Earlier this week, Mexico's senate passed important labor
reform legislation. Mexico's labor market has previously suffered
from rampant underemployment and slack job creation,
. The new labor reforms are aimed at bringing some relief to
Barclays' Marco Oviedo called the reforms a "very important
structural advance," according to Barron's. EWW and the Mexican
economy have 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.
As for EWW, the ETF
has more than doubled the gains of Mexico's
benchmark Bolsa IPC Index this year
Wages are rising in Mexico, as well, and
GDP growth there could be as high as five
this year. Alone, those factors bolster the case for buying EWW
on a pullback, particularly if the ETF retreats as down to the
$61.50-$62 area and finds support there.
Should Mexico's labor reforms have the desired impact of
facilitating the creation of better jobs, EWW becomes all the
more alluring. The $1.4 billion ETF allocates a combined 39
percent of its weight to consumer staples and discretionary
stocks, highlighting the fund's leverage to Mexico's growing
middle class and burgeoning consumer story.
Investors should also note that if Mexico's jobs outlook
improves and domestic demand surges, EWW is not the only fund
with which to exploit these trends. The newly minted EGShares
Emerging Markets Domestic Demand ETF (NYSE:
) was designed as an explicit play on growing domestic
consumption with developing nations.
EMDD, which debuted in August, allocates over 51 percent of
its weight to consumer goods and services stocks. Mexico
dominates EMDD's country weights with an allocation of 24.4
percent. The next largest country represented in the ETF is India
at 15.3 percent.
Telecom giant America Movil (NYSE:
), Wal-Mart de Mexico, Fomento Economico (NYSE:
) and Grupo Modelo (
) are top-10 holdings in both ETFs.
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