Mexico Offers Emerging Market Growth at Developed Market Prices



Mexico looks expensive

On the valuation front, Mexico is not cheap. Its benchmark index trades at about a 20% premium to the S&P 500 (SPY) (IVV) (VOO). Compared to the equities of its other Latin American (ILF) peers, Mexico’s equity is trading at higher forward earnings.

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Emerging market growth at developed market prices

The iShares MSCI Mexico Capped ETF (EWW) tracks Mexican equities. The ETF is currently trading at a PE (price-to-earnings) ratio of 18x. Developed markets such as the United States, Europe (VGK), and Japan (EWJ) are trading at this level.

Though these developed markets have been affected recently by the fall in crude oil prices, China’s economic slowdown, and low global demand conditions, the United States is still trading at a PE of 17x. Europe is trading at 15x, while Japan is trading at 13x.

Mexico looks expensive. It seems to be offering emerging market (EEM) growth, which should ideally command a PE multiple of about 11x compared to developed markets’ (EFA) 15x.

However, there is a catch. We’ll take a look at it in the following article.


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