Mexican stocks within exchange traded funds have seen a dramatic reversal of flows as investors take to riskier markets and the country regains hope for promising trade deals with the US and Canada.
Mexican ETFs see uptick as NAFTA trade deal nears conclusion
US President Donald Trump has also excepted Mexico from his steel and aluminium tariffs, boosting investors’ hope that Mexico will not be a direct victim of the US’ increasing moves towards isolationist trade policies.
There has also been increased optimism around the trilateral NAFTA deal between the US, Mexico and Canada, although investors were disappointed by Trump saying there was no timeline for the talks.
Inflows bet on Mexico in the near term
Global ETF investors have allocated cumulative flows of more than $610 million in the last month alone, the highest single-day inflows reaching $108 million on 4 April. This means flows over one year are in the black, following outflows peaking at around $430 million between last April and early January.
The pick-up of cash coincides with a turnaround in returns. Mexican stocks in ETFs are up on average over 7% in the last month, beating the S&P 500’s returns over the same period – minus 1.5% – by a wide margin.
Longer term investors would still not have recouped their losses in Mexican stocks, however, given returns in this sector are down more than 8% in the last year and around 16% in the last three years. By contrast, the bellwether US index is up 17% and 38% over the same periods.
Brazil and Peru, also very volatile regions, have seen a slight uptick in ETF flows this month.
Investors have dipped toes in emerging markets as global uncertainty, which caused three market sell-offs of varying degrees since the New Year, has calmed down, at least in capital markets, over the last few weeks.
The iShares MSCI Mexico Capped ETF (EWW), which launched in 1996 and costs 0.48% per year, has outperformed average returns, delivering 10% year to date. Around $120 million has flowed into the fund since 5 April.
Mexican investors hope to move talks forward
Progress on NAFTA is likely to be made this year due to upcoming elections in Mexico and the American midterms, with trade officials on both sides of the border keen to advance on the already seven rounds of talks since mid-2017.