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Mexico ETFs
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About Mexico ETFs |
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Mexico ETFs Overview and forecast
Mexico and its culture are unique, and so is its ETF market. Unlike practically every other ETF on the market, the sole Mexican ETF, an ishares ETF, started in the lower price ranges, began trading in the upper ranges in the 2006 boom in huge volumes, and after the 2008 crash, was trading at multiples of about 5 times its inception price.
That's the exact opposite of the normal ETF history, and trade is measured in millions of units. This is in pretty severe contrast to the normal picture of a battered Mexican economy, but there's no doubt that trading in iShares MSCI Mexico Index Fund (AMEX:EWW) would do credit to any global market.
EWW definitely isn't following the normal script in terms of trading patterns. This ETF made a vertical dive during the worst part of the 2008 crash, then rebounded sharply followed by another big downward move to March 2009. It then rebounded again, above the previous levels in the earlier upswing.
Short term (6 months)
This is a sensitive market, and traders will need to check the market intensity and speeds of movement. As you can see from our chart, http://www.etftips.com/EWW the Rate of Change (ROC) is quite volatile, and if there are clear periodic movements, they're very variable in scale. This is a real trading market, not unlike the Brazilian ETF market in terms of its ability to be both a good and nerve wracking trading environment.
Trading patterns, interestingly, are as volatile in the day trading as in the longer term markets. Trading shows spikes, rather than the continual volumes. Some of these spikes are quite large, and the weekly patterns are quite similar. The short term view is that the market will correct the recent big upward moves first, before a relatively shallow upward movement.
Medium term (2 years)
Trading has been solid and very energetic since 2006, and hasn't slowed down despite the crash. The general picture is of a developing market for ETFs. There is definite, built in upside to this market. The surprising thing is that there aren't more ETFs in Mexico.
However, the recession is likely to drive the big picture in the medium term. The Mexican stock market is highly vulnerable to the US markets, and the Mexican economy is shaky. These are the underpinning realities of the Mexican capital investment market. The medium term, in the middle of the biggest recession since 1929, is looking unreliable.
Long term (5 years)
If the trading patterns are unusual, the holdings are very much the traditional ETF mix. Assuming a global recovery, the Mexican investment market and ETF outlook would be pretty good. The problem is that this recession isn't working to a schedule, and the hot local market trading can go down as quickly as up.
Like most local market ETFs, Mexico's quirks are an acquired taste. Although this is a good trading market, the investment options are limited. It's debatable whether the long term upside is likely to be based on more than natural growth in trading volumes. On that basis, there is a definite upside.
Qualifiers to projections
Investors should be very clear on the various difficulties regarding investments in Mexico. Mexico's current domestic problems are making regular headlines, and it has to be said that there are obvious related issues in the investment market. The situation seems to have become worse rather than better. To say that the economic and crime issues aren't exactly a tourist brochure for foreign investment would be an understatement.
Added to this unacceptable situation is the fact that the economic fundamentals are weak for investors. Per capita, this is a low capital market, and investments are based on the relatively small number of private investors, as well as corporate and institutional buying. Mexico isn't an equity market in the same sense as other markets. Investors need to be well aware of the risks, and understand the way the Mexican equity market works, before making a commitment.
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Last Updated on: 2010-01-14 02:03:40 |
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