The Fundamentals Driving This Mexico ETF Higher
Sean Brodrick: One of the best economies in the world right now is not China or Saudi Arabia or some other far-off place. It’s right next door, in Mexico.
My Global Resource Hunter subscribers took a round of gains on the iShares MSCI Mexico Capped Investable Market Index Fund (NYSEARCA:EWW) earlier this year. We grabbed it again recently and the position is showing an open gain.
There are fundamental reasons why, but a picture is worth a thousand words …
So, let me show you a chart …
Looking at the chart, we can see a couple of things. Clearly, the iShares Mexico Index, which tracks a basket of Mexico’s best stocks, is channeling upward.
Plus EWW pushed above overhead resistance last week. I think it should zig-zag its way to $99 — maybe higher.
Here are some of the fundamentals driving this move …
Government Reforms: A pro-business, reform-minded politician, President Enrique Pena Nieto, took charge in Mexico in December. He is opening Mexico’s telecom, television and energy markets — and creating opportunities for investors.
Higher Sovereign Rating: Thanks in part to Nieto’s reforms, Standard & Poor’s upgraded the outlook for Mexico’s sovereign credit rating to positive from stable. This signals a possible upgrade in the next 18 months, which is attracting foreign investment.
Good Neighbors are Good for Business: Thanks to the North American Free Trade Agreement, Mexico’s economy is leveraged to U.S. economic growth — and the U.S. economy is growing thanks to our energy boom and other factors.
Mexico became a place where U.S. companies outsourced their labor. Manufactured goods represent 71% of Mexico’s total exports, with 79% of its total exports going to the United States.
Demographics: More than 55% of Mexicans are 30 years old or younger. This is a generation that is growing wealthier than their parents, and they want to buy cars, eat, dress well and invest.
For a while, Mexico lost business to China. But now manufacturing is shifting back to Mexico due to rising labor costs in China and increased transportation costs.
EWW tracks a basket of leading Mexican companies including mining-and-materials giant Grupo Mexico (GMBXF), beverage firms including Coca-Cola Femsa (KOF) and Grupo Modelo (GPMCF) and retail companies including Wal-Mart de Mexico (WMMVY).
These are companies whose shareholders should benefit as Mexico rides a new capitalist boom and benefits from increasing consumer purchasing power.
Does Mexico have problems? Yes. The drug war is still going on, and there are parts of Mexico that I wouldn’t go to, and neither should you. But there is also tremendous opportunity, and an investor would be foolish to ignore it.
My Global Resource Hunter subscribers received my previous buy recommendation on EWW, and my recommendation to grab gains. I told them when they should buy the fund again, and I’ll let them know when it’s time to exit down the road.
If you’re doing this on your own, do your own due diligence. But if you’d like to get my picks when the opportunities are at optimal buy and sell points — click here to join us!
The markets are trending higher. Pullbacks are buying opportunities. This is not a time to sit on your hands.
This is a time to get busy and make the most of the opportunities in front of you. And I think a very good opportunity lies south of the border.
All the best,
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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