Peso Sent Mexico ETF EWW Flying In Q1

By Ugo Egbunike,

Shutterstock photo

The SPDR S&P 500 ETF (NYSEArca:SPY) wasn't the only thing bringing double-digit returns to investors in the first quarter of 2012. A little investment foray "south of the border" would have been even better, according to data compiled by IndexUniverse.

Indeed, investors in the iShares MSCI Mexico Investable Market Index Fund (NYSEArca:EWW) saw a 16.29 percent return in the first quarter, much of it on the back of the Mexican peso.

At the index level, the MSCI Mexico USD-denominated index was up 15.81 percent, while the MSCI Mexico local index was up only 6.31 percent in the first quarter, another clear sign of how important currency crosses are to returns in modern globalized investment markets.

Again, that difference in performance of 9.50 percentage points is attributed to the Mexican peso, which rallied 8.8 percent against the U.S. dollar over the course of the quarter. The peso's strength is largely due to the steady hand of Mexico's central bank, which has kept inflationary pressures at bay, as IndexUniverse's Currency Impact Report shows.

MSCI Country
1 Week 3 Months 12 Months
USD Local FX
USD Local FX
USD Local FX
Brazil BRL -1.20% -0.76% -0.45% 14.52% 12.01% 2.51% -12.49% -1.86% -10.63%
Chile CLP 1.37% 1.21% 0.17% 18.47% 11.33% 7.14% -0.86% 1.00% -1.86%
Colombia COP -0.76% 1.28% -2.04% 18.13% 9.46% 8.67% 11.61% 7.12% 4.49%
Peru PEN 2.89% 2.88% 0.01% 13.63% 13.47% 0.16% 2.77% 2.49% 0.28%
Mexico MXN 3.11% 3.08% 0.03% 15.81% 6.31% 9.50% 0.10% 7.70% -7.59%

Last month, Mexico's central bank directors left the benchmark interest rate unchanged at a record low of 4.5 percent after inflation eased to 3.87 percent.

Mexico's relatively tame inflationary outlook also came at a time when U.S. consumer confidence rose to a one-year high in March and jobless claims fell to their lowest since February 2008-huge positives for Mexican exporters that rely heavily on U.S. consumers.

Should the U.S. economy begin to slow down, a correction in the peso will undoubtedly draw back returns for investors in EWW.

Even more concerning is a potential slowdown in China-an endpoint for much of the raw materials produced in Latin America.

As of now, manufacturing data from China points to a bullish peso. New factory orders in China rose to an 11-month high in March, but analysts say monetary policy easing is still needed to avoid the hard landing that some still fear.

Other Currency News

Despite the up-down movements of the euro/dollar cross, the euro has been a wind at the back of U.S. investors over the course of the first quarter.

For example, U.S. investors in the iShares MSCI Germany Index Fund (NYSEArca:EWG) saw returns of 21.12 percent, over 3 percentage points higher than the returns of local investors in Germany. The move comes after the euro appreciated by nearly 3 percent in the first quarter.

Unfortunately, the European debt crisis continues to plague the currency.

Still European officials have managed to establish a total rescue package in the area of $1 trillion-a significant sign that there's strong political commitment to the eurozone.

More information and data on currency performance is available in this week's IndexUniverse Currency Impact Report.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: EWG , EWW , SPY

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