Mexico ETF: An Improved Growth Outlook

Jan.18.11 | About: iShares MSCI (EWW)

While one ratings agency outlines a pessimistic outlook for Mexico, its economy has jumped back from one of its worst recessions on record, and reports of upward revisions in growth could translate to a good year for a Mexico-specific ETF.

Of course, there is still one lingering problem -- but first, the good news:

  • An indicator for Mexico’s total economic output rose 0.5% in last October, or up 4.3% year-over-year, reflecting a preview of economic growth that was faster than previously expected for the fourth quarter, reports Jason Lange at Reuters.
  • Bank of Mexico governor Agustin Carstens stated that the economy will soon maintain sustainable growth that could fuel inflation, but analysts suspect that the Central Bank will hold interest rates steady in the short-term.
  • A number of new jobs have been created, chipping away at the high unemployment rate, though many acknowledge that far more is needed to consider Mexico “recovered.”
  • Finance Minister Ernesto Cordero could raise Mexico’s growth forecast from the current estimates of 3.9% on improved U.S industrial production and internal demand, write Carlos Manuel Rodriguez and Crayton Harrison at Bloomberg.

Drug violence, however, continues. Reuters reported that Fitch Ratings recently commented that “the rising wave of drug-related violence [in Mexico] appears to be dampening confidence, retail and commerce activities, possibly weighing on a more robust investment and economic outlook.” Fitch currently holds Mexico at a BBB foreign-currency debt rating.

For now, iShares MSCI Mexico (NYSEARCA:EWW) is undeterred by such risks; in the last three months, it’s up 12% and in the last year, it’s up 23%. Its top sectors -- telecom and consumer staples, which together account for 50% of the ETF – are more reliant on domestic demand, so this fund could continue to power on despite the negatives.

iShares MSCI Mexico (EWW)

[Click to enlarge]

Max Chen contributed to this article.