Cinco de Mayo, Spanish for 'fifth of May', is a holiday that
looks commemorate Mexico's victory over the French in the Battle of
Puebla. The victory by the Mexicans was a big surprise, as many
expected the French to make short work of the Mexicans and easily
drive on to Mexico City (though it should be noted that France
eventually did beat Mexico and briefly install an Emperor).
Today, Cinco de Mayo is a time to celebrate all things Mexico, and
given all the recent news coming out of the country, it is also a
great time to take a closer look at the Mexican economy as well.
Mexican Economy in Focus
Mexico has long been considered a low-cost manufacturing
destination, and a budding rival to behemoths like China or
Vietnam. However, a recent study by the Boston Consulting Group
showed just how far Mexico has come in terms of being a big player
on the manufacturing stage (see
all the Latin American Equity ETFs here
The survey showed that
Mexico now has lower average manufacturing costs
, driven by productivity gains and steady exchange rates. And if
energy prices remain high or if wage inflation in China becomes a
big problem, the cost advantage for Mexico could definitely
increase, suggesting that the country will remain a destination for
those seeking to add manufacturing capacity for years to come.
Furthermore, Mexico is also making great strides in terms of
liberalizing its extremely important energy sector. The country
recently outlined a number of market-friendly
to open up the nation's vast oil and gas industry to competition,
hopefully drawing a huge amount of investment in short order.
If these proposals are passed, it will be the first time since 1938
that Mexico's energy sector will be open to outsiders, a situation
which could attract considerable amount of interest from oil majors
around the globe (see
7 ETFs to Buy in 2014
The plan could also boost Mexican tax receipts too, as the country
is looking to increase oil production by 40% by 2025, and with a
10% royalty when oil is at $100/bbl., this could act as a huge
catalyst for Mexico (though obviously new projects will need to be
up and running to make up for the coming lower tax rate and
production levels from Penmex).
Clearly, Mexico is making some great strides and its economy may
also be primed to see gains in the months and years ahead. This may
be particularly true if the energy sector sees a huge boost from
the liberalization plan, or if developed markets like the U.S.
remain strong and thus continue to demand goods produced in Mexico.
While there are a few Mexican stocks that trade in the U.S., there
are two Mexican ETFs as well. These funds might be great picks
given the recent positive news out of the country, or at least
definitely worth a closer look by investors should these catalysts
continue to boost the prospects of the increasingly dynamic Mexican
iShares MSCI Mexico Capped ETF (
This is the most popular Mexico ETF trading in the U.S., and the
oldest too, as it has been on the market since 1996. The fund also
sees great volume in excess of three million shares a day, so bid
ask spreads should be relatively tight in this product (read
Is the Mexico ETF A Better Play on Latin
The fund has just over 50 stocks in its basket, with a big
weighting to top component America Movil which makes up just over
16.3% of the total assets. This helps telecoms take the second
biggest allocation in the fund at 17%, edging out basic materials
(16%) and financials (15%), and just being edged by consumer
staples at 22%.
EWW has had a rough 2014, as it has underperformed the S&P 500
and it is in the red YTD. However, given some of the longer term
positive catalysts that we described above, the fund could return
to form later this year, and especially if appetite for emerging
market ETFs comes back.
db X-trackers MSCI Mexico Hedged Equity Fund (
This ETF is the newcomer on the Mexico ETF block, as it made its
debut earlier this year. The fund hasn't really seen a surge in
popularity though, as it still sees volume below 10,000 shares a
day and a small asset base.
The holdings for DBMX are pretty much identical to EWW, and this
probably isn't helping the fund build up assets. America Movil is
again the top spot, while consumer staples, telecoms, basic
materials, and financials make up the top four sectors, each
accounting for at least 15% of assets (see
3 More Hedged ETFs Hit the Market from Deutsche
The real difference between this fund and EWW is the currency
hedging, as DBMX looks to strip out the impact of the Mexican peso
on the fund's returns. So when the peso is weak, this ETF could
outperform its more popular counterpart, though it does look to lag
when the peso is strengthening.
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DB-XT MS MEX HE (DBMX): ETF Research Reports
ISHARS-MEXICO (EWW): ETF Research Reports
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