Mexican manufacturing sector holds steady

Mexican manufacturing sector holds steady PART 1 OF 1

Mexican manufacturing sector holds steady

Mexican manufacturing sector holds steady

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Economic leading indicators refer to data points or statistics about the economy that change before the economy as a whole changes and are therefore used to predict future performance. While a single indicator cannot predict whether or not the economy is expanding or about to fall back into recession, using various leading indicators can form a clearer picture of where the economy is heading. The stock market is forward looking, meaning that the stock market falls before the economy goes into recession and rises before recovery begins. Investors trying to time the market for an optimal entry and exit point into a stock may use some kind of leading indicators to analyze where the price may go.

In the case of ETFs tracking country indices, such as iShares MSCI Mexico Index Fund (EWW), macroeconomic leading indicators become key in understanding the behavior of the foreign economy. Many of the leading indicators used in the United States are generally available in one way or another in the more mature emerging markets. In Mexico, the Mexican Institute for Statistics and Geography (INEGI) publishes several leading indicators.  

On October 26, 2012, the INEGI released the manufacturing sector indicators; two key such indicators are shown above. Employment increased minimally, though the number of hours worked showed a strong up-tick. Note that the values of the index are simply values relative to a base value; in this case the base is 2008, which is equal to 100. At any time the index may be re-based to a different year; all that matters is the trend of the current values, not their absolute values.

 In this case, the data may be interpreted as a mildly positive sign for EWW as well as for iShares Latin America 40 Index Fund Holdings (ILF) or SPDR S&P Emerging Latin America ETF (GML), which have exposures of 27% and 25%, respectively, to the Mexican stock market. The data though, may not be qualified as overly strong given the employment figures have been relatively flat since May. This may imply that managers are not committing to new hires and are instead paying extra hours in case demands dwindles. Investors should follow these updates closely to get a closer read of the strength of the Mexican economy.


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