Don Dion's Weekly ETF Blog Wrap

Here is some of what Don Dion blogged about on RealMoney this past week.

Still Bullish on Mexico

Posted 1/19/2010 2:49 p.m. EST

When it comes to international ETFs in 2010, some of the most promising strength appears to be coming from Mexico.

While I continue to hold the iShares MSCI Mexico Investable Market Index Fund (EWW) as a play on strength across the broad Mexican markets, I am also optimistic about the country's peso vs. the U.S. dollar. For this reason, I hold the CurrencyShares Mexican Peso Trust (FXM) as a small currency position as well. With the Mexican and U.S. economies heading toward recovery, the stage is set for both of these funds to head higher.

I'm not alone in my positive outlook for the nation's currency. Recently, firms including Deutsche Bank, Pimco and Aberdeen have come out to share their own optimistic outlooks for the Mexican currency. In an article by Bloomberg, an Aberdeen representative said that Mexico's peso is significantly undervalued and offers some of most upside in Latin America.

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Already this year the peso's 3% rise against the U.S. dollar makes it the second-strongest currency against the greenback, beaten only by the Korean won.

While a strong peso will buoy FXM, EWW should also be a beneficiary. All else held equal, a strong peso would hinder exports to foreign nations like the U.S., but the United States' growing demand for more goods and services should offset currency-driven losses.

Additionally, as I mentioned when discussing the Korean won, the peso has remained markedly weaker vs. the dollar than other currencies over the past five years, including the yen, euro and real. The peso still appears to have room to appreciate against the dollar before valuation begins to cut into exports.