Mexico ETF Sees Best Week in 5 Years on Resiliant Economy Bets

(Bloomberg) -- Investors poured cash into a popular Mexican exchange-traded fund at the fastest pace in five years last week on signs the economy in the US — Mexico’s top trading partner — is holding up better than expected.

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Mexico saw nearly $182 million of flows into ETFs, led by $148 million for the iShares MSCI Mexico ETF, which was its biggest inflow since November 2018. It was part of a broader $864 million invested in ETFs that buy emerging market stocks and bonds, ending two weeks of outflows that reached $864 million.

Mexican stocks have outperformed peers recently, supported by the nearshoring trend, where manufacturers are moving operations to Latin America’s No. 2 economy to be closer to the US market. But local equities had stumbled on the surge in US interest rates as well as renewed concerns that President Andres Manuel Lopez Obrador, or AMLO, is meddling in the economy.

Eduardo Figueiredo, a fund manager at abrdn in Sao Paulo, said in a phone interview that the rally was partly driven by easing concerns of a US recession after the most recent Federal Reserve decision and US jobs report. Around 80% of Mexican exports are shipped to US markets and migrants send home around $60 billion in remittances every year, binding both economies together.

“If the US is more resilient, Mexico will be more resilient,” Figueiredo said.

Moreover, Mexico was set to rally after the pronounced selloff in Mexican stocks early last month, when AMLO’s move to revise the fees charged by private airports spooked investors and sparked the biggest intraday stock slump since March 2020. AMLO’s confrontations with different business sectors have led to big slumps, but equities have recovered as investor worries appeared overblown.

Figueiredo said he disagreed with managers who see Mexican stocks as expensive, given strong earnings and balance sheets. He has been adding to positions in Mexican bank Grupo Financiero Banorte SAB as well as Fomento Economico Mexicano SAB due to the exposure of both bank and consumer names to the economic tailwinds from nearshoring.

“When we see markets dipping for short-term concerns or event-driven risk-off mode from AMLO, we take those opportunities to add on the margins,” Figueiredo said.

Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $838.8 million in the week ended Nov. 10, compared with losses of $255.2 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since July 14. So far this year, inflows have totalled $7.82 billion.

  • Stock ETFs expanded by $531.1 million.

  • Bond funds rose by $307.7 million.

  • Total assets rose to $296.8 billion from $296.2 billion.

  • The MSCI Emerging Markets Index was little changed from the previous week at 948.32 points.

  • India had the biggest inflow, of $181.8 million, led by WisdomTree India Earnings Fund.

  • Mauritius had the biggest outflow, of $115,920, following withdrawals from iShares JP Morgan EM Corporate Bond.

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Following are tables detailing net flows for emerging-market ETFs in US dollars. The data include the holdings-weighted allocations from multi-country funds, as well as country-specific funds. Latest and historic flows are allocated using latest fund weightings (figures in USD millions unless otherwise stated):

Regional Summary

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Americas

Asia Pacific

Europe, Middle East & Africa

(Recasts with details on Mexico ETF)

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