In the wake of a sustained Trump rally which has seen U.S. and Canadian equities rise at the expense of Mexican stock markets, contrarian investors considering the possibility of a mean reversion trade have begun to take a look at ways of playing potential Mexican market strength regardless of how other North American indices move.
One of the things investors interested in buying into the Mexican market will be watching closely is how the Mexican peso continues to perform relative to the U.S. dollar. As the Mexican peso appreciates relative to the greenback, the relative competitive edge many Mexican companies have due to its undervalued currency will be diminished, thus potentially providing a significant headwind to the Mexican market relative to the U.S.
That said, the most prominent Mexican ETF, the iShares MSCI Mexico Capped ETF (TSX: EWW) is currently up approximately 30% this year, despite an appreciation of the Mexican peso compared to U.S. dollar of 20%, indicating a market belief that the Mexican market will continue to strength, and that the Trump-fueled concerns which initially drove the peso down following the Trump election victory may be largely overblown.
The size and strength of this particular ETF is one of the key reasons why investors largely pile into this ETF when looking to make a Mexico trade. Highly liquid and well-diversified, this is the ETF I would recommend investors looking at taking on some Mexican risk move forward with as a market proxy in these uncertain times.
Invest wisely, my friends.
