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