EWW (iShares - Blackrock) replicates the MSCI Mexico IMI 25/50 of the major Mexican stocks.
This is a fairly varied index, with four sectors representing 75% of the market capitalisation, which are consumer goods (26%), followed by financial sector (16%), commodities (15%) and telecoms (14%). The top 10 holdings, including giants such as America Movil (Telecommunications) or Cemex (cement), represent 57% of the index's capitalisation. This tracker embeds the Mexican peso risk, which can be rather erratic and largely depends on US policy.
The ETF's expenses are slightly higher than the average of our library and fall to 0.48%, which is usual for emerging market ETFs. Assets Under Management are significant at 1 184 M$.
Mexico is among the world's top 20 economies. It is the second Latin American economy (behind Brazil), but remains very dependent on the United States. GDP growth was above 2 per cent in 2016, even though poverty and underground economy were constrained. Since 2012 the peso has been under pressure despite a rise in the automotive industry, with Mexico becoming the largest car producer from Latin America.
Mexico is heavily dependent on its foreign trade, whose share in GDP is about 65% and the US absorbs c.80% of Mexican exports. Mexico exports mainly to NAFTA and the European Union, mainly electrical and electronic equipment, vehicles and oil. The main partners are NAFTA, China and Japan. Mexico has benefited in recent years from the economic strengthening of the United States for its exports, although these were hurt by the sharp drop in oil prices in 2015. As a result of the drop in crude oil prices, the trade deficit increased sharply to $11.9 bn in 2015.
Mexico ranks among the world's largest producers of coffee, sugar, corn , oranges, avocados and green lemons but also minerals, including Silver, fluorite, zinc and mercury. It is the 5th largest producer of global oil. Oil company Pemex is seen as the second largest Company in Latin America. Mexico is also the fifth beer producer and the second world exporter. The aerospace sector has grown strongly, bringing together nearly 190 companies (including Bombardier, Goodrich, Safran and Honeywell) and is also part of the ten major automotive producers.
The information and software sectors are also experiencing strong dynamism, driven by labour quality and low operational costs, enabling the establishment of call centers. The industrial sector accounts for about 1/3 of GDP compared to 60% for the tertiary sector, but it is now in the focus of Trump who wants to start negotiations on NAFTA in mid-August. The US could seek to impose a customs duty on imports of the Mexican automotive industry by arguing that Mexico is playing unfair competition by maintaining, for example, its low wages. In this case Mexico is likely to leave the negotiating table, and will set like China some customs duties with the United States under the WTO rules. Mexico's economy is undergoing modernisation, it is very flexible and should adapt to the new picture. The fall in oil prices is not good news, but the positive is it will help to avoid overheating in inflation, which is currently at a 8 years peak at more than 6%, due to the fall in the peso.
