POLITICAL RISK: Mexico ETF Downgraded to Sell Amid Constitutional Threats – Click Here to Find Out More!

Mexico City, Mexico – The iShares MSCI Mexico ETF, known as EWW, is facing a downgrade from a Buy to a Sell rating due to looming political risks that investors need to consider. The Morena Party’s control of both houses in Mexico may bring about constitutional changes that could disrupt the country’s checks and balances, impacting investment decisions. Additionally, the possibility of a second term for President Trump in the United States adds another layer of uncertainty, potentially leading to selling pressure in the market.

Political events have historically had a significant impact on the Mexican market, affecting equities, debt, and currency due to perceived changes in macroeconomic policy. Previous events, such as the elections of President Trump in 2016 and AMLO in 2017, led to market sell-offs, with the currency and the EWW experiencing declines. As we look ahead, the next five months pose potential risks that may not yet be fully reflected in asset values, urging caution among investors.

The upcoming changes in the Mexican government, with a new congress starting in September and a new president taking office in October, are raising concerns among market participants. With the Morena Party in control of both houses for a month and the US elections on the horizon, the market is bracing for potential impacts on Mexico’s assets related to issues like the border, immigration, and trade policies.

Analysts have begun to adjust their price targets and earnings expectations for the EWW ETF since the June election, citing higher risk-free rates as a factor. This adjustment could affect the ETF’s upside potential as we move into the 2Q24 earnings season in August. Additionally, changes in FX rates may prompt further downgrades for portfolio holdings, especially for companies with significant operations in Mexican pesos.

Despite the EWW appearing cheap post-sell-off, with a lower PE ratio and PEG ratio, concerns about the weakened FX, economic slowdown, and lack of rate cuts are causing analysts to reassess their projections. The upcoming earnings season is expected to bring more scrutiny to the ETF’s holdings, with the risk-off mindset potentially leading to increased selling pressure in the medium term.

The main risks associated with the Sell rating on the EWW ETF include potential constitutional changes in Mexico that could undermine the rule of law and increase the country’s risk profile. Another risk factor is the outcome of the US presidential election, particularly if President Trump is not reelected. These factors contribute to the decision to downgrade the EWW ETF, as political uncertainties both domestically and internationally could trigger further selling pressure in the market.