Prior to a recent pullback that has seen the ETF lose nearly six percent in the past month, the iShares MSCI Mexico Investable Market Index Fund (EWW) had been one of the best-performing country-specific ETFs in 2012. Recent political action out of Mexico could mean EWW's retrenchment is a buying opportunity for patient investors.
Earlier this week, Mexico's senate passed important labor reform legislation. Mexico's labor market has previously suffered from rampant underemployment and slack job creation, Barron's reported. The new labor reforms are aimed at bringing some relief to those issues.
Barclays' Marco Oviedo called the reforms a "very important structural advance," according to Barron's. EWW and the Mexican economy have already been benefiting from an influx of manufacturing jobs from China. Rising wages in China have sent some manufacturing jobs to Mexico and due to higher fuel prices, some U.S. firms have favored production of goods in Mexico over China due to the former's proximity to the U.S.
As for EWW, the ETF has more than doubled the gains of Mexico's benchmark Bolsa IPC Index this year.
Wages are rising in Mexico, as well, and GDP growth there could be as high as five percent this year. Alone, those factors bolster the case for buying EWW on a pullback, particularly if the ETF retreats as down to the $61.50-$62 area and finds support there.
Should Mexico's labor reforms have the desired impact of facilitating the creation of better jobs, EWW becomes all the more alluring. The $1.4 billion ETF allocates a combined 39 percent of its weight to consumer staples and discretionary stocks, highlighting the fund's leverage to Mexico's growing middle class and burgeoning consumer story.
Investors should also note that if Mexico's jobs outlook improves and domestic demand surges, EWW is not the only fund with which to exploit these trends. The newly minted EGShares Emerging Markets Domestic Demand ETF (EMDD) was designed as an explicit play on growing domestic consumption with developing nations.
EMDD, which debuted in August, allocates over 51 percent of its weight to consumer goods and services stocks. Mexico dominates EMDD's country weights with an allocation of 24.4 percent. The next largest country represented in the ETF is India at 15.3 percent.
For more on ETFs, click here.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.