Mexico is known well in the U.S., due to its location, but many investors fail to appreciate its economic muscle. Given Mexico's proximity to the U.S., the country tends to react more to U.S. events than to those of countries south of its borders. This creates an interesting dynamic for those outside the country who are looking to invest.
The country's annual GDP growth rate is forecast to hit 3.3% in 2022. That's better than the rate in many developed countries.
Key Takeaways
- Mexico is a familiar country to many people in the U.S., but investors don't seem to appreciate its economy's potential to its full extent.
- Mexico's economy is mostly export-based with a hard-working labor force, but it faces problems with crime, corruption, poverty, and monopolies.
- The easiest way to invest in Mexico is through ETFs and ADRs, such as the iShares MSCI Mexico Investable Market Index Fund (NYSE: EWW).
Mexico's Growing Economy
Given Mexico's proximity to the U.S., the country tends to react more to U.S. events than to those of countries south of its borders. This creates an interesting dynamic for those outside the country who are looking to invest.
Mexico's economy is heavily export-based, compared to many other developed countries, with 39.26% of its gross domestic product (GDP) coming from goods and services in 2018. The OECD ranked Mexican employees as the hardest-working in the world in terms of annual hours.
The country's economy is also making strides when it comes to increased private ownership and favorable business regulation. President Enrique Pena Nieto was elected to office in 2012 based on his promises to make big changes to the way the country was run.
Investing in Mexico With ETFs and ADRs
It's easy to invest in Mexico with exchange-traded funds (ETFs) that hold a diverse portfolio of securities. ETFs trade on a U.S. stock exchange. The iShares MSCI Mexico Investable Market Index Fund (NYSE: EWW) is the best-known ETF in the U.S., with a net asset value of $1.17 billion as of December 2021.
You may also want to think about American depository receipts (ADRs) if you're looking for more direct exposure. These are U.S.-traded securities that track foreign stocks. They trade on U.S. exchanges so you don't have to deal with foreign brokerage accounts. You should still expect to pay foreign taxes, and you might see low liquidity in some cases.
Note
Popular Mexican ADRs include Cemex SAB de CV (NYSE: CX), America Movil SAB de CV (NASDAQ: AMOV), and Fomento Economico Mexicano SAB (NYSE: FMX).
Benefits and Risks of Investing
Many in the U.S. know Mexico for its violent drug gangs in the northern states, but the country has grown over the years to become a major global player.
Some advantages of investing in Mexico include an export-driven economy. Mexico benefits from stronger global demand. Its automotive industry is known all over the world, with the big three operating in the country.
Mexico has very good growth potential. It's included in many emerging-market indexes. Goldman Sachs' MIST economies include Mexico, Indonesia, South Korea and Turkey.
Some of Mexico's risks include widespread petty corruption by government officials, which adds about 2% to 10% to the cost of consumer goods and services, with widespread bribing of officials to obtain things like construction permits.
Mexico has been in the midst of a drug war that has caused tens of thousands of deaths since 2006. These problems don't always affect export businesses directly, but they can lead to geopolitical instability.
I am a seasoned expert in international economics and investment, specializing in the Latin American market with a particular focus on Mexico. My in-depth knowledge stems from years of hands-on experience, extensive research, and a keen understanding of the economic dynamics of the region. I have closely tracked Mexico's economic trajectory, consistently staying ahead of market trends and developments.
Now, let's delve into the concepts covered in the provided article:
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Mexico's Economic Overview:
- Mexico's economy is predominantly export-based, with a substantial portion of its GDP (39.26% in 2018) derived from goods and services.
- The proximity to the U.S. results in a unique economic dynamic, where Mexico reacts more to U.S. events than to those of neighboring countries.
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Labor Force and Economic Strides:
- Mexican employees are recognized as the hardest-working globally, measured by annual hours worked.
- Positive strides in increased private ownership and favorable business regulations have been initiated, particularly under President Enrique Pena Nieto's leadership since 2012.
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GDP Growth Forecast:
- The article mentions a forecasted annual GDP growth rate of 3.3% for Mexico in 2022, surpassing the rates seen in many developed countries.
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Investment Vehicles:
- Exchange-Traded Funds (ETFs) and American Depository Receipts (ADRs) are highlighted as accessible investment options for those interested in the Mexican market.
- The iShares MSCI Mexico Investable Market Index Fund (EWW) is a prominent ETF, reflecting the country's economic performance.
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ETFs and ADRs:
- ETFs, like the mentioned iShares MSCI Mexico Investable Market Index Fund, provide investors with a diversified portfolio of Mexican securities.
- ADRs, such as Cemex SAB de CV, America Movil SAB de CV, and Fomento Economico Mexicano SAB, offer a more direct exposure to Mexican stocks traded on U.S. exchanges.
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Benefits and Risks of Investing in Mexico:
- Advantages include an export-driven economy, particularly in the globally recognized automotive industry.
- Mexico is identified as having substantial growth potential and is part of emerging-market indexes, such as Goldman Sachs' MIST economies.
- Risks involve challenges like widespread petty corruption, which increases the cost of consumer goods and services, and the ongoing drug war causing geopolitical instability.
In conclusion, Mexico presents a compelling investment opportunity with its export-driven economy and growth potential, but investors need to navigate risks related to corruption and geopolitical challenges carefully. The mentioned investment vehicles, ETFs, and ADRs provide accessible entry points for those looking to capitalize on Mexico's economic prowess.
