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Behind the Post Presidential Debate Surge in Mexico ETF

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Democratic candidate, Hillary Clinton, apparently had an upper hand in the first presidential debate. This is especially true as the latest polls and surveys show Clinton having an edge over Republican Donald Trump. As per the CNN/ORC poll, 62% of voters who watched the debate see Clinton as the winner compared with 27% for Trump while a public policy polling survey revealed that Clinton won the debate with 51% of voters (read: Clinton Apparently Won First Debate: ETFs in Focus).

This has brought back the allure for riskier assets, and has given a boost to the global stock market. Notably, Mexican stocks and its currency emerged as clear winners of the debate as Clinton’s victory may mean favorable trade relations for the country. In fact, Mexican peso jumped 2.5% post debate.  

Why Mexico?

Mexican peso and the stocks were the hardest hit on fears of a Trump presidency that sent the currency slumping to a record low against the U.S. dollar last week. This is because Trump policies could prove a nightmare for the Mexican economy with less employment, less income, lower exports, and thus a weakening currency (read: ETFs to Watch as Trump Races Closer to Clinton).

Trump intends to renegotiate or terminate the North American Free Trade Agreement – the free trade deal between Canada, Mexico and America. This would hamper the trade relationship between Mexico and the U.S., and hurt the country’s exports. Notably, 81% of its exports go to the U.S. that makes up for more than one-third of Mexico’s GDP. The renegotiation might impose a 35% tariff against the import of Mexican goods, like cars, to the U.S.

Additionally, Trump seeks to build a wall along the U.S. southern border to keep Mexican immigrants away. This would directly restrain Mexico’s balance of payments.

However, the debate went against Trump, bringing some respite to the Mexican economy and the stock market. As a result, investors’ should catch on this opportune moment by investing in single country ETFs. While there are four ETFs available in the space, we have highlighted a couple of funds that offers broad exposure to the Mexican stock markets without a currency hedging tacked on it (see: all the Latin American Equity ETFs here).

Both ETFs gained nearly 4% in yesterday’s trading session after Clinton apparently won the debate. These have a Zacks ETF Rank of 3 or ‘Hold’ rating, with a Medium risk outlook.

iShares MSCI Mexico Capped ETF (EWW - Free Report)

This fund is by far the most popular and liquid ETF in the Latin America space with AUM of $981.2 million and average daily volume of nearly 2.7 million shares a day. It tracks the MSCI Mexico IMI 25/50 index and holds 62 securities in its basket having a higher concentration on the top two firms with over 9% share each. Further, the fund is heavy on consumer staples making up for more than 26% of the portfolio, closely followed by financials (21.5%). It charges 49 bps in fees per year from investors (read: Mexican Economy Shrinks First Time in 3 Years: ETFs to Watch).

SPDR MSCI Mexico StrategicFactors ETF QMEX

This fund offers exposure to 31 Mexican stocks that have value, low volatility and quality factor strategies. This is done by tracking the MSCI Mexico Factor Mix A-Series Capped Index. It is also highly concentrated on the top two firms that collectively make up for 20.3% of assets and a consumer staples sector accounting for 34%. The fund has accumulated $2.1 million in AUM. It charges 40 bps in fees per year from investors and trades in a paltry average daily volume of 3,000 shares.

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