Living in Southern California has a number of advantages; in particular, we're so close to Mexico's Baja Peninsula, we require little more than an overnight bag and a hankering for authentic fish tacos.
Actually, it has become a bit more laborious to travel to Mexico in recent years. A driver's license might have been enough in the early 90s to spend a day in Ensenada. Now, everyone needs a passport.
At present, Mexican authorities regularly issue warnings to American citizens about gun violence. Why? The government's been in a near-epic battle against drug cartels.
Yet if one judged Mexico on its up-tick in violence alone, he/she might miss out on investment opportunities. To visit Cabo San Lucas at the southern tip of Baja, for instance, one is awe-struck by the amount of real estate development. What's more, a growing number of Mexican consumers are fast consuming everything from cell phones to flat screens.
What's going on south of the border? Why, for example, is the peso hitting 6-year highs against the American dollar, even as the dollar has strengthened against other world currencies?
We can start by examining the iShares MSCI Mexico Index (EWW). The primary Mexico ETF has held up better than Europe, Asia, Russia, Canada, Australia, Brazil... you name it.
Yet it goes farther than that.
Until recently, the hot money was pouring into Rio. However, the sell-off in commodities and fear of a global recession has taken a greater toll on Brazil (EWZ). The country ETF has suffered a dramatic pounding over the last 10 weeks.
Relatively speaking, however, Mexico (EWW) has been superb. Although it is down 5% YTD, this is far less than the U.S. benchmarks. Companies like American Movil (AMX), the wireless provider, and Cemex (CX), the worldwide player in building materials, have helped this exchange-traded fund prosper.
Actually, it goes much further than that. Whereas the U.S. dollar has strengthened considerably against most of the world currencies, the CurrencyShares Peso (FXM) is the only exchange-traded fund that is currently above its long-term trendline.
The CurrencyShares Peso (FXM) is up as much as 8% in 2008. And, the peso's uptrend seems to defy the notion that you can get stuff on the cheap by visiting Mexico.
Truthfully, Mexico's rising in impressive fashion. It's got its share of emerging market woes, including high unemployment rates in neighboring nations, the threat of a global economic downturn and the potential for gang violence to hampering tourism.
Nevertheless, Mexico's interest rates are high enough to combat inflation. Its growth, while moderate, is more sustainable than current growth here at home. And at 3.6% unemployment, Mexicans are able to spend some of their discretionary dollars.
(Discover more about investing in the Latin American region.)
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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