Why Has the Dow Crushed Mexico's Stock Market Lately?

On Cinco de Mayo, take a look at how Mexican stocks have fared.

May 5, 2014 at 12:30PM

The Dow Jones Industrials (DJINDICES:^DJI) demonstrated the strength of the bull market on Monday, recovering from initial losses of more than 100 points to trade just under breakeven as of 12:30 p.m. EDT. Elsewhere around the world, concerns about global economic growth have had a mixed impact on international stock markets. As Mexico celebrates its Cinco de Mayo holiday, let's look at the U.S.' neighbor to the south and how its stock market has fared compared to the Dow Jones Industrials.

Why Mexico has struggled recently
Throughout the past decade, the Mexican stock market has absolutely crushed the Dow Jones, as you can see below:

^DJI Chart

^DJI data by YCharts.

The performance of the Mexican stock market in local-currency terms is largely tracked by the Mexico-IPC line above. The iShares MSCI Mexico ETF (NYSEMKT:EWW), on the other hand, is dollar-denominated and therefore reflects changes in the relative value of the U.S. dollar compared to the Mexican peso.


The strong returns from Mexican stocks reflect the opportunities that the country's businesses have had and how they've taken advantage of those opportunities. On one hand, Mexico stands ready to meet the needs of a growing Latin American consumer class with strong production capabilities at relatively low cost. On the other hand, Mexico has a strategic advantage over rivals like Brazil in lucrative trade with the U.S. and Canada, thanks to the North American Free Trade Agreement. Moreover, its shared border with the U.S. has created convenient opportunities for U.S. companies to benefit from Mexican production facilities to reduce costs and boost margins, including companies in the Dow Jones Industrials.

But more recently, Mexico has fallen out of favor:

^DJI Chart

^DJI data by YCharts.

Many analysts have blamed the Federal Reserve's pullback of its quantitative easing program for the underperformance of Mexico and other emerging-economy stock markets compared to the Dow Jones Industrials. As downward pressure on bond rates from the Fed's actions dissipates, many see the U.S. stock market as having more attractive growth prospects, and that has led to a general drop in emerging-market interest in Mexico and around the world.

Yet the drop isn't uniform across the Mexican stock market. As you can see below, some stocks are performing better than others:

CX Chart

CX data by YCharts.

You can see the general trend here. Cemex (NYSE:CX) represents how well companies that do business not just domestically but also in the U.S. and other developed-market nations have taken advantage of better conditions in the U.S. economy. As construction activity rises, Cemex benefits from selling more cement into the United States.

Conversely, companies that are focused on domestic or purely Latin American operations haven't done as well. Beverage companies have performed badly as they suffered from the same trends that have hurt their U.S. counterparts. Meanwhile, telecom giant America Movil (NYSE:AMX) has seen greater competition in the Latin American telecom market weigh on its future prospects, pushing investors toward safer areas.

Still, despite its recent slump, Mexico has plenty of long-term opportunities to capitalize on. If it can sustain the positive momentum it has built up over the past decade, then Mexico could give investors a great chance to get into the country's stock market on the cheap, and its market could produce greater returns than the Dow Jones Industrials.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information