Mexico’s reliance on the US
Mexico (EWW) is still impacted by its dependence on the US (SPY) (QQQ) through its trade relations and investments. The North American Free Trade Agreement (or NAFTA) deal has boosted Mexico’s (SMK) economic performance over the last decade.

The stronger growth in the US (IWM) has positively impacted the Mexican economy (UMX). However, the recent anti-trade rhetoric by President Trump has impacted investment sentiment in Mexico. Despite the recent uncertainty related to trade relations between the US and Mexico, the manufacturing activities in Mexico picked up the pace in May 2017. The chart on the left shows Mexico’s manufacturing activity over the last year.

Improved production growth
The Markit Mexico Manufacturing PMI rose to 51.2 in May 2017 compared to 50.7 in April 2017. Manufacturing activity in May 2017 outpaced market expectations of 50.5, mainly due to rising production volumes.

Output volumes, new orders, and employment increased modestly, mainly driven by stronger exports in May 2017. Overall business conditions in Mexico (EWW) improved marginally in May 2017, making it the second-fastest expansion since October 2016.

The overall rise in new business volumes is mainly supported by increased export sales in Mexico. Exports from Mexico increased 3.6% on a year-over-year basis in April 2017. As a result, employment levels increased marginally as additional workers were hired in May 2017.

Increased production demand also led to a moderate increase in purchasing activity in the manufacturing sector in May 2017.

Price pressures and business
Price pressures remained strong as overall input inflation remained high and resulted in the steepest rise in selling prices in the last three months. Meanwhile, the confidence level for future growth in Mexico also improved compared to the same period in 2016. This improved confidence is mainly linked to new projects in the pipeline and high demand expectations from the export market.

The iShares MSCI Mexico Capped ETF (EWW), which tracks Mexican equities, has risen ~21% so far in 2017 through June 9, 2017. Currently, Mexican markets seem to be benefiting from improved economic activity in the US.

Source: Market Realist

By: Mary Sadler