ETFs
Relocation and elections create “multi-year” opportunities
Mexico was among the best-performing domestic ETFs in 2023 thanks to a strong Mexican peso following Banco de Mexico’s decision to begin its monetary policy tightening cycle a year ahead of the Federal Reserve.
Despite an increase of more than 40% last year, nearshoring represents a “multi-year” opportunity after two decades of “meager” growth, according to Sekar Indran, senior portfolio manager at Titan Asset Management.
According to the U.S. Census, Mexico was the United States’ largest trading partner in 2023, ahead of China and Canada, with $798 billion in trade between the two countries. “We are aware of the strength of the rally in Mexican stocks and the peso last year, but there could be opportunities to allocate allocations to the region in the event of weakness,” Sekar said.
“The offshoring trend is expected to be a multi-year tailwind for the economy, with historic increases in capital spending improving productivity after two decades of meager growth.
” His view was echoed by Willem Sels, global CIO at HSBC Global Private Banking and Wealth, who said changes in global supply chains benefit Mexico “dramatically.”
“Latin America has more favorable factors and that is why we are overweight the region, especially Brazil and Mexico,” Sels said. “Changes in global supply chains are benefiting Mexico, as many U.S. companies are actively offshoring production. Mexico is now a more important trading partner of the United States than China.
Demand for Mexican products has helped the country’s manufacturing purchasing managers’ index (PMI), which has seen a steady rise in recent years.
“Total new orders increased and Mexican manufacturers collectively saw the largest combined sales increase in just under five years,” said Dina Ting, head of global index portfolio management at Franklin Templeton.
“While a host of new trade agreements, such as increased partnerships related to the supply of essential minerals and other essential goods, have multilateral benefits, offshoring has been a particular boon for Mexico.”
Election
Furthermore, President Andrés Manuel López Obrador (AMLO) created a favorable context for the prosperity of the economy during his mandate. While Obrador is expected to leave office after the June 2 elections, his party, Morena, heads a coalition currently leading in the polls.
“Obrador has positively surprised the investment world by demonstrating immense fiscal discipline and a hands-off approach that should guarantee his party’s re-election with the possibility of more expansionary fiscal policy in the future” , explained Sekar.
Ting added: “A bill to revamp national stock exchanges to boost trade, approved recently by Mexico’s congress, also bodes well for Latin America’s second-largest economy. »
AND F
There are three ETFs available to European investors. The cheapest is the 18 million dollars HSBC MSCI Mexico Capped UCITS ETF (HMEX) which has a total expense ratio (TER) of 0.50%.
HMEX, alongside the $83 million iShares MSCI Mexico Capped UCITS ETF (CMXC), tracks the MSCI Mexico Capped Index which caps the largest stock at 30%.
This contrasts with Europe’s largest Mexican ETF, the $274 million fund. Xtrackers MSCI Mexico UCITS ETF (XMEX), which tracks the 24-stock MSCI Mexico Index. Both CMXC and XMEX have fees of 0.65%.
This article was first published in ETF Insider, ETF Stream’s monthly ETF magazine for professional investors in Europe. To read the full edition, Click here.