EWW Stock Recent News

EWW provides exposure to Mexican majors, but we worry about the impact of minimum wage increases on earnings of Mexican corporates. Consumer staples and financials are attractive due to economic resilience and potential benefits from higher interest rates. However, the substantial minimum wage increase that affects 33% of the workforce is possibly a major earnings headwind, especially with global recessions still on the table. Pass on EWW.

Latin American stocks have performed well in 2023, with ETFs from Brazil, Argentina, and Mexico outperforming the S&P 500. The iShares MSCI Mexico ETF is recommended as a buy, with value still seen in the south-of-the-border portfolio. EWW has a concentrated portfolio and high exposure to consumer staples, but its low valuation and strong momentum make it an attractive investment.

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iShares MSCI Mexico ETF is facing potential volatility due to Mexico's interest rate roadmap and the vehicle's weighting structure. Mexico's sluggish growth and reliance on foreign trade may hinder the ETF's performance. The EWW ETF has concentration risk, underwhelming price multiples, and is exposed to elevated risk premiums.

EWW has performed well due to resilient exposures and a strong Mexican Peso. The ETF has significant exposure to consumer staples and financials, which have matched inflation rates or benefited from higher interest rates. The Mexican economy's lack of leverage and capacity for hawkishness make it less vulnerable to the negatives of higher rates.

Mexico has been well established as a center of integrated manufacturing supply chains, particularly around assembly, for the North American market. Mexico has managed to avoid many US tariffs, and its share of US imports of semi-articulated truck trailers increased to 87.2% in the 12 months to May 31, 2023, from 70.5% in 2016.

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The market discount sees a Mexican central bank rate cut from November. We agree, and we in fact can see rates being cut faster than the market discounts thereafter.

Franklin FTSE Mexico: A Lower-Cost Mexican Equities ETF

The iShares MSCI Mexico ETF has outperformed the S&P 500 over the last three years, with a 31% total return year-to-date. EWW has a higher dividend yield and a lower price-to-earnings ratio than the S&P 500 but also has added volatility and concentration risk. The ETF's technicals and seasonal tailwinds support continued absolute and relative strength, making it a buy in my view.