Investors have eyeing up Mexican ETFs in recent weeks as performance soared over November.
The iShares MCSI Mexico Capped UCITS ETF (CMXC) led the way with 18.1% returns over the past month, followed by the Xtrackers MSCI Mexico UCITS ETF (XMEX) and the HSBC MSCI Mexico Capped UCITS ETF (HMEX) which returned 17.5% and 16.9%, respectively.
Sekar Indran, senior portfolio manager for equities at Titan Asset Management, said Latin America was in a “very good position” and was potentially looking to add to Mexican equities in the future “on an improved entry point”.
“Mexico has done very well recently, but on a short-term basis maybe there is a case they are a bit overstretched,” he said.
“We like Mexican equities at a broad index level but perhaps we could get a better entry point, from an economic perspective, emerging markets are in a very good position but maybe there could be better timing.”
Other investors believe the market could see increased volatility over the next six months ahead of its Presidential election in June.
Despite this, the market is expected to continue to benefit from increased “nearshoring” activity, the relocation of manufacturing plants closure to the US – meaning it captures geographical supply chain benefits – and competitive rates for highly skilled labour.
Mexican equities are being tipped for further outperformance in 2024 on the back of an improved growth outlook.
The Bank of America (BofA) recently upgraded its GDP forecast from 3.2% to 3.4% in 2023 and from 1.4% to 1.8% in 2024 to reflect recent surprises on the upside.
“Its highly pro-cyclical fiscal policy is one of the reasons Mexico continues to grow above potential despite a real overnight interest rate currently at 7.1%,” Carlos Capistran, Canada and Mexico economist at BofA Securities, said.
CMXC hit highs of 24.7% in July before steep losses due to unexpected change to airport concessions agreements.