Mexico ETF Faces Volatility Despite Temporary Tariff Reprieve

The U.S. and Mexico paused a planned 25% tariff for one month, agreeing to tackle security issues while reopening trade talks. Mexican President Claudia Sheinbaum confirmed the deal Monday, highlighting a troop deployment to curb fentanyl trafficking and a U.S. pledge to restrict arms smuggling.

President Donald Trump called the agreement "very friendly," with high-level negotiations now led by Marco Rubio, Scott Bessent, and Howard Lutnick. Investors are watching the iShares MSCI Mexico ETF EWW as trade uncertainty lingers.

Also Read: Trump’s Tariffs Are Here. Here’s What Will Get More Expensive From Canada, China, and Mexico

The Rise Of EWW

The iShares MSCI Mexico ETF has gained popularity among investors looking to tap into Mexico's growing economy, which, for years, has been one of the largest and most dynamic in Latin America. As a country with significant trade ties to the U.S., including the automotive, manufacturing, and energy sectors, the ETF is essentially a proxy for the health of Mexico's stock market.

The ETF covers a wide range of sectors, with its top holdings being companies from consumer goods, financials, and industrials, many of which are highly sensitive to U.S. policies. This is reflected in its beta of 1.06%, which means that it is more volatile than the overall market.

Notably, 2024 was a year full of challenges for the ETF. Various factors, including economic uncertainties and currency fluctuations beat down the fund. This was followed by Trump’s tariff plan revealed on Nov. 24, citing concerns over drug trafficking and illegal migration related to Mexico. This led to immediate market reactions, and EWW dropped 2.8% in after-hours trading that day. In the past year, the ETF price has crashed 25%.

What's Next For EWW?

Looking forward, the iShares MSCI Mexico ETF faces many hurdles, as a reflection of the economic shakeup in the country.

Already, the Mexican Peso has weakened, and while the tariff pause provides temporary relief, trade uncertainty remains. A prolonged dispute could disrupt trade flows, drive inflation higher, and risk a recession in Mexico. Although Mexico has avoided immediate retaliatory measures, future tensions could strain economic relations and impact market sentiment.

One potential silver lining for the ETF is the diversification it offers. With holdings across multiple sectors, including consumer goods, financials, and energy, the ETF may be better positioned to weather the storm compared to more narrowly focused funds. Additionally, the ETF could benefit from long-term structural trends in Mexico's economy, such as its growing middle class and efforts to boost manufacturing and infrastructure.

However, for investors, uncertainty remains. While the tariff pause offers a temporary reprieve, the long-term impact on the Mexican economy and trade relations is unclear. The ability to adapt to shifting policies will be key, but for now, volatility persists.

EWW Price Check: The iShares MSCI Mexico ETF was up 2.5% at $50.22 at the time of publication Monday.

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• 3 U.S. Auto ETFs Caught In The Crosshairs As Trump Announces 25% Tariff On Mexican Imports

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