There are a plethora of trading opportunities in emerging markets (EM) aside from China. For example, there’s a compelling case to get exposure to Latin America, Mexico in particular, given its growing economy despite demanding conditions in recent times.
The rate-hiking cycle the past few years has been applying downward pressure on EM assets overall. The performance of emerging markets assets is typically tied to local currencies, so a strong greenback amid rate hikes isn’t conducive to strength in EM.
However, the recent rate pause by the U.S. Federal Reserve is bringing optimism back in EM assets. With rate cuts anticipated for 2024, once the U.S. Federal Reserve starts to back off from its tight monetary policy and the dollar eases, emerging market assets could potentially flourish. That said, there are still opportunities to take advantage of EM countries, such as Mexico.
Looking specifically at GDP, Mexico presents the second largest economy in Latin America. Traders who wan to play short-term opportunities in the country could consider the Direxion Daily MSCI Mexico Bull 3X Shares (MEXX ), which is up over 60% for the year.
With its triple leverage ability, MEXX seeks daily investment results equal to 300% of the daily performance of the MSCI Mexico IMI 25/50 Index. The index is designed to measure the performance of the large-, mid- and small-capitalization segments of Mexico’s equity market, covering approximately 99% of the free-float-adjusted market capitalization in Mexico.
Mexico's Economic Momentum Continues
Mexico’s economic momentum can continue if favorable macroeconomic tailwinds continue. In a report, the Dallas Federal Reserve indicated that output grew during the third quarter, industrial production picked up, retail sales climbed despite inflation, and domestic investment grew thus far in 2023.
“Mexico’s economy expanded for an eighth consecutive quarter, driven by domestic consumption and industrial activity, according to the preliminary official estimate,” the Dallas Federal Reserve noted. “Real GDP grew 3.6 percent in the third quarter, above the previous quarter’s gains of 3.4 percent and analyst expectations of 3.2 percent.”
Of course, one of the main factors affecting economic growth will continue to be inflationary pressure. Thus far, however, inflation appears to be receding given the latest data.
“Mexico’s consumer price index (CPI) increased 4.3 percent in October, slightly slower than September’s 4.5 percent rise (Chart 9),” the Fed added.
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