| NEW YORK, Sept 30
NEW YORK, Sept 30 An exchange-traded fund
focused on Mexico has become a weather vane for Republican
Donald Trump's chances winning the U.S. presidential election in
November, investors said.
Mexico has been a prime target for Trump, who has accused
the country of taking away jobs from Americans, focusing
particular ire on a landmark 1990s trade agreement with the
United States' southern neighbor and Canada. He has said he will
renegotiate the North American Free Trade Agreement, commonly
known as NAFTA, or pull out of it, and build a wall along the
U.S.-Mexico border to curb illegal immigration.
Although a range of factors influence all markets, investors
said this week that the U.S.-listed iShares MSCI Mexico Capped
ETF (EWW) is increasingly being driven by the prospect
of the New York businessman's election.
It has been a good year for equity investors in emerging
markets in general after three years of negative returns. But
the $1 billion ETF has underperformed and is now in negative
territory for the year as the peso has fallen and Trump's
chances of winning the Nov. 8 election have gone up - though
predictive models such as FiveThirtyEight and betting markets
still forecast a Clinton victory.
Short interest in the ETF - essentially bets that it will
fall in price - have risen 59 percent since last month as Trump
gained steam, according to financial analytics firm S3 Partners
Trump's worst relative showing in the past few months was
Aug. 9, when a closely watched opinion polling average showed
him nearly 8 percentage points behind Democratic rival Hillary
Clinton. Her lead has tightened to about 3 points, according to
the RealClearPolitics average, although it is off lows of less
than 1 point earlier this month. The latest Reuters/Ipsos poll
released on Friday gave Clinton a 5-point lead over Trump, with
43 percent of likely voters.
"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, said
in an email interview. "In other words, as Trump's popularity
rises, the chances of a negative impact on the Mexican economy
But it is not just shorts. The fund's price has also tended
to suffer when polling averages and betting markets forecast
Trump doing better. By contrast, the fund has tended to rise
with Clinton's prospects, according to a Reuters analysis of
market data, the polling averages and PredictIt prediction
market data over the last quarter.
The ETF saw a mild rebound this week after Clinton was seen
by most as besting Trump in their first presidential debate on
Much of the negative performance has been driven by the
decline of the peso since last month, which hurt returns
for U.S. dollar investors even when Mexican stocks hold their
"There's no reason for the peso to go from 18.20 to 19.50
(per dollar) unless it's because Trump has gone from being
behind to being dead even with Hillary," David Garff, president
of Accuvest Global Advisors, which sold its last share of the
fund in May, said in a phone interview.
Mexico's central bank chief Agustin Carstens said on Friday
that "it was a reality" that there was a correlation between his
country's weakening currency and the Trump campaign.
"I can't deny there's a knee-jerk reaction by the peso when
it was perceived (Trump) did badly in the debate," said Win
Thin, global head of emerging market currency strategy at
financial services firm Brown Brothers Harriman in New York,
"but the peso's been weakening for several years even before
Trump became the nominee."
"The media has been playing this up a bit, but Mexico's
already suffering from low oil prices, sluggish growth," he
said. "The peso is often used as a proxy for the wider emerging
markets, so there's all these other factors that to me are more
important to determining the peso exchange rather than Trump."
Even if the peso's decline has already come to an end,
Accuvest's Garff said Mexican stocks held by the ETF could still
be in for pain under a Trump presidency.
Four-fifths of Mexico's exports go to the United States, and
Garff said Mexican manufacturers could suffer if the United
States forces its NAFTA partners to renegotiate the treaty.
Central bank chief Carstens, speaking on local radio, said a
Trump victory would hit his country like a hurricane, adding
that the scenario for Mexico was better with a Clinton win.
"If Trump does try to blow up NAFTA, it will hurt Mexico. No
question," said Garff, the investor. "It is a double whammy."
(Additional reporting by Dion Rabouin; Editing by Christian
Plumb and Jonathan Oatis)