Mexico, the second largest economy of Latin America has turned
into something of a manufacturing powerhouse. In fact, it has
stolen share of production from other big emerging nations such as
Attributable to its fundamentals, the Mexican economy has beaten
even Brazil in terms of the biggest economies of Latin America. Its
competitive manufacturing costs, open economy, and low debt level
in both the private and public sectors had helped it to rapidly
increase its growth level (
Forget Brazil; Mexico ETF is Hot
However, lately this fast growing economy of Latin America seems to
have gone into a reversal. The Mexican economy contracted in the
second quarter for the first time in four years.
The economy reported a contraction of 0.7% in its growth level
compared to its first quarter growth. Earlier the central bank had
cut its growth projection for the economy to 2% in 2013 which is
not even the half the pace of growth in 2012.
It also appears that lower public spending along with the region's
stagnant export level to U.S. has impacted the growth prospects of
the economy. It should be noted that United States' economic
prospects are closely tied with the Mexico's economic development.
Mexico exports as much as 80% of its goods to U.S. while imports
from U.S. account for almost 50%.
However, an industrial recovery is expected to further gain
strength in U.S. which should improve the export level of the
Mexican economy. Moreover, a strong manufacturing sector along with
favorable demographics should also fuel the growth of the economy
going forward (see
all the Latin America Equity ETFs here
Rate Cut by the Bank
Conversely, what came as a surprise is the central bank's
initiative to cut interest rates thereby bringing interest rates to
their lowest level. This is the second time that Mexico had cut its
interest this year.
Mexico's central bank had cut its rates by a
quarter-percentage-point to 3.75%. The move is expected to
strengthen the economy of Mexico and monetary easing policy by the
Impact on Mexico ETF
The ETF tracking the Mexican economy,
iShares MSCI Mexico Capped Investable Market Index Fund (
traded higher by nearly 3% after Banco de Mexico unexpectedly
decreased the interest rate.
EWW tracks the MSCI Mexico Investable Market index which consists
of stocks traded primarily on the Mexican Stock Exchange. The index
is a capitalization weighted index that aims to capture 99% of the
total market capitalization (read
Why the Mexico ETF is a Long Term Winner
Mexico ETF in Focus
Launched in March 1996, the fund now has more than $2.4 billion in
AUM and appears to be one of the popular Latin America choices
among investors as indicated by its trading volume of more than 5
million shares a day.
The assets are invested in 48 holdings with an average market cap
of $30.33 billion. Among individual holdings, America Movil appears
to be dominating the performance of the ETF as indicated by its
allocation level of 16.07% in the ETF. Among others, the fund does
not invest more than 7.77%.
However, the fund appears to have a concentrated holding pattern in
its top ten choices of companies. Investment in top ten holdings
stands at 58.7%.
Among sector allocation, the fund appears has done a good job in
spreading the asset base. Consumer staples (22.8%), financials
(19.6%) and telecom (16.6%) are the top sectors that the fund is
invested in. Materials and Industrials also get double digit
allocation in the fund.
The fund charges 53 basis points per year in expenses and currently
has a 30-say SEC yield of 0.82%.
The fund delivered a gain of 7.37% over the period of one year
while its year-to-date loss stands at 6.02% (also read
Avoid These 3 Emerging Market ETFs
This ETF could be a solid choice for investors looking for a
further turnaround in emerging markets. The country is closely-tied
to the U.S., and with our economy coming back strong, things could
be looking up for Mexico too.
Given this information and the boost of the recent rate cut, Mexico
could now be back on track and once again worth a closer look by
investors seeking exposure to this emerging economy.
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ISHARS-MEXICO (EWW): ETF Research Reports
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