Donald Trump’s run as the Republican nominee has been fraught with controversy, in no small part due to his bombastic protectionist pronouncements. One major target of his attacks is Mexico, which he claims is taking away jobs from US citizens. On more than one occasion, he has expressed plans to sever ties with the southern neighbor of the US by renegotiating or pulling out of NAFTA, not to mention building a wall along the US-Mexico border to control illegal immigration.
Because of this, said a recent report from Reuters, US-listed iShares MSCI Mexico Capped ETF (EWW) is being driven by the possibility of the New York mogul’s election as president of the US.
While equity investors in emerging markets have generally had a good year so far, the US$1 billion has underperformed, being sunk into negative territory by a falling peso and the strengthening prospect of a Trump victory on Nov. 8. Short interest in the ETF has also increased 59% since last month as the Republican nominee gained momentum, according to financial analytics firm S3 Partners LLC.
“Shorting the EWW ETF may be a vehicle to bet on Mr. Trump's success in being elected the next president of the U.S. and his willingness to address the long-standing Mexican trade imbalance,” Ihor Dusaniwsky, S3 Partners' head of research, told Reuters in an email. “In other words, as Trump's popularity rises, the chances [sic] of a negative impact on the Mexican economy rises.”
The fund’s price has also proven sensitive to the winds of the US presidential campaign. A Reuters analysis of market data, polling averages, and PredictIt prediction market data over the last quarter showed the fund suffering when polls and forecasts favored Trump and recovering when Clinton’s prospects rose. The ETF bounced slightly last week after Clinton’s perceived win over trump in the first US presidential debate.
The Mexican peso is also being affected by Trump’s presidential run, although the currency had been suffering from low oil prices and sluggish growth long before his nomination, according to Mexico's central bank chief Agustin Carstens. Still, he says Trump’s influence is significant enough that a Republican victory would hit his country like a hurricane.
“If Trump does try to blow up NAFTA, it will hurt Mexico. No question,” said Accuvest Global Advisors President David Garff, noting that four-fifths of Mexico’s exports go to the US. “It is a double whammy.”
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