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As the globalization movement matures, countries like Mexico are becoming
more capable and competitive. Its exports to the U.S. have grown at the expense of China over the past few years but it is questionable if such performance will be as good in the future. Here’s why. Words: 470
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.
Orlowski goes on to say, in part:
Consumers in the U.S. may become more accustomed to “Made in Mexico” labels rather than “Made in China.” China…is losing some of its business to Mexico,….which now accounts for 14.2% of manufactured imports into the U.S….compared to just 11% in 2005, seeing its exports to the U.S. going from a high of 29.3% at the end of 2009 down to 26.4% of late. [Read: Move Over China: Competition From Mexico is Growing Rapidly – Here’s Why]
Mexico, moreover, while winning a bigger slice of the U.S. market, has diversified its customers, reducing its exports to the U.S. from 90% a decade ago…to less than 80% now. Mexico, it seems, has become the preferred center of manufacturing for multinational companies looking to supply the Americas and, increasingly, beyond.
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Today, Mexico exports more manufactured products than the rest of Latin America put together – which will come as no surprise for those readers who have been watching Mexico and Mexico-oriented investments the past few years.
A comparison of two ETFs, the iShares MSCI Mexico Investable Market Index ETF (EWW) and the iShares FTSE/Xinhua China 25 Index ETF (FXI) provide an interesting perspective for investors.
In the chart above, which goes back to the stock market bottom of March 2009, we see that both ETFs have risen since the market crashed. FXI, however, peaked in late 2010 and is trading significantly lower today. EWW, on the other hand, has traded recently as high as at any other point since March 2009.
The 8-year chart below provides a more dynamic picture of the rise of EWW vs. FXI. Prior to the financial crisis, both ETFs were performing well, reflecting the general prosperity in both developed and developing economies. FXI was doing better, but then again that was expected, as the focus of emerging market investors at that time was primarily BRIC-oriented.
Today we have…an out-performing Mexico. I suspect that we will see more manufacturing coming back to the Americas…[now] that regional proximity between manufacturer and consumer is becoming a priority consideration again so, if Mexico can maintain its appeal with competitive labor costs and a reasonable regulatory environment, then we may see more exports to the U.S….[Read: Impact of U.S. Fiscal Cliff on Canada, Mexico and Much of the Developed World Would be Major]
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Conclusion
However, with significant uncertainties regarding the U.S.’ economic future, it is questionable if the performance of EWW and other Mexico-related investments will be as good in the future. A recession in the U.S. will dampen results from Mexican exporters. Caution is advised until the U.S. gets its act together.
*http://emergingmoney.com/china/mexico-could-be-the-new-china/
Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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