Mexico … Time to buy ! – Virt Portfolio

 

Mexican Peso :   The Mexican Peso has lost around 18% against USD since the day before Donald Trump’s election  and  38% since 2014  . This latter numbers might look huge but it has to be put into perspective considering that currencies like EURO, GBP and NOK,..  have respectively lost 24%, 29% and 28% against the Dollar in the same period. In the last 3 years, the Peso has suffered like most other currencies from general USD strength and on top of that was slaughterted by the so-called « Trump »effect especially when in Q2 2016  odds to see Trump as the Republican candidate for the US election started to increase . Even tough the Trump administration might dramatically hurt mexican economy, MXN recent weeks acceleration to the downside (Up for USD) is clearly an exxageration. Do not forget that as The Economist pointed 2 weeks ago,  40% of inputs in goods sold from Mexico to US comes .. from USA !! If Trump wants to punish Mexico, America itself will be hurt.

Technically,  MXN has reached last week the upper side of its 1 year range and being in overbought position it looks difficult to see the 22 level broken at this stage. The trend is slowly reversing as shown by the macd curve and bearish (for USD) divergences do appear between price and momentum indicators (here macd).

There is room for correction here in favour of the peso given that « Trump » effect will likely fade and that USD has entered a consolidation (nice word to say weakness) period .

Short term MXN bonds can be found with 5 to 7% yields in very good names . For example a Rabobank  maturing in Jan 2018 has a approximate 6% Yield , a 3 years EIB with 7% yield .

 

Mexican Stocks :  The mexican stocks valued in USD as shown by the Ishares Mexico here below (ticker EWW) have lost 20% since November 8th ( by the way Russian stocks have GAINED the same percentage) . Stocks like the currency seem to have bottomed from an range (USD 39 -USD 42 – see long term chart link below ) that acted as strong support in the last 10 years . Like for the MXN I add MACD reversal and price/ momentum divergence as technical evidences of a potential rebound .

Action : Buy 1 unit of EWW Max price 43.25 USD // SL : usual 10% closing basis .

 

Long term EWW chart :    http://schrts.co/ZY8wGG