Recently Moody’s upgraded Mexico’s debt rating from Baaa1 to A3, making it among the highest in the region with a low risk of default. Bravo, Mexico! Continued annual growth, a diversified economy, expansive free trade agreements and domestic reforms are all to thank for Mexico’s strong rating. Don’t buy into the negative picture the media is painting about Mexico -- now might be a great time to invest.
Unlike most of other Latin American countries, Mexico has a diverse economy. It does not rely heavily on commodities like oil production, which is a good thing since oil prices have plummeted over the past year, causing economic declines in many oil-reliant countries. Mexico is the 12th largest exporter in the world and has 44 free trade agreements with everyone from the U.S. and Canada to China and Japan. Agricultural and industrial exports are expanding -- over 80% of Mexican exports are manufactured goods. Internal reforms under President Enrique Pena Nieto, including overhauls in the energy sector, adoption of agricultural technologies, the deregulation of telecommunications and the partial privatization of the oil industry have all contributed to Mexico’s economic growth to the tune of 2.5% last year. Even though half the Mexican population lives below the poverty line, the Mexican economy is ranked 15th in the world, with a nearly $1.3 trillion GDP (making it the second largest Latin American economy, after Brazil, and with a GDP that is more than double that of the next closest country, Argentina).
Ready to head South of the Border and make some dinero? Here are three ways you can invest in Mexico from the comforts of your home:
1. Invest in the broad-based Mexican equity market (EWW). Managed by iShares, this highly targeted fund offers exposure to a wide array of companies in Mexico, including Grupo Bimboa (a Mexican bakery company specializing in breads, crackers and cakes) and Walmart de Mexico (yes, that Walmart). This fund is 100% Mexican, no artificial colors or flavors.
2. Invest in a “Quality” Mix ETF of Mexican equities (QMEX). This approach tracks an index of Mexican securities with an equally weighted mix of low volatility and value stocks. Consumer goods are the queso grande here, representing 43% of the fund, with industrials, financials and basic materials each taking 15% of the pie. Telecom and healthcare fill out the rest. Because of their open acceptance of free trade agreements and the diversification of its manufacturing production, especially with the increased growth of high-end items such as automobiles and electronics, Mexico is on the rise, experiencing year-over-year growth in all but one industrial area (iron and steel), according to a 2015 Stratfor report.
3. Gain exposure to agricultural production, including but not solely, in Mexico (COW). Companies that produce grains, dairy and livestock as well as agricultural chemicals, fertilizers, farm machinery and packaged foods and meats are the focus here. The livestock ETF, COW, offered by iPath includes big-name companies, such as Tyson Foods, E. I. DuPont, Monsanto, Del Monte and Deere & Company. Over 80% of the sector is focused on U.S. companies, with another 6% from Canada, 5% from Switzerland and approximately 8% from four Latin American countries, including Mexico (1.34%).
Despite the negative attention given to Mexico in the media (think illegal immigrants, police corruption, El Chapo), the financial positives should not be overlooked. Mexico is thriving and the U.S. recognizes this. Mexico and the United States are pretty chummy when it comes to trade. Mexico exports over 80% of their goods to the U.S. and imports over 50% from the U.S. In 2013, the two-way trade in goods and services was more than $550 billion. Maybe it’s time to make Mexico more than your next Spring Break destination.
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Commentary is provided for educational and information purposes only and should not be considered as investment advice. Investing involves risks including the risk of loss. Before investing, consider your investment objectives, financial resources and risk factors.