New York (Reuters) – An exchange-traded fund focused on Mexico has become a weather vane for Republican Donald Trump's chances of winning the U.S. presidential election in November, investors said.
Mexico has been a prime target for Trump, who has accused the country of taking away jobs from Americans, focusing particular ire on a landmark 1990s trade agreement with the United States' southern neighbor and Canada. He has said he will renegotiate the North American Free Trade Agreement—commonly known as NAFTA—or pull out of it, and build a wall along the U.S.-Mexico border to curb illegal immigration.
Although a range of factors influence all markets, investors said this week that the U.S.-listed iShares MSCI Mexico Capped ETF (EWW) is increasingly being driven by the prospect of the New York businessman's election.
It has been a good year for equity investors in emerging markets in general after three years of negative returns. But the $1 billion ETF has underperformed and is now in negative territory for the year, as the peso has fallen and Trump's chances of winning the Nov. 8 election have gone up—though predictive models such as FiveThirtyEight and betting markets still forecast a Clinton victory.
EWW is down 1.3%, while the broad market as measured by the SPDR S&P 500 ETF Trust (SPY) is up 7.22%.
Chart courtesy of StockCharts.com
Short Interest In EWW Up 59%
Short interest in the ETF—essentially, bets that it will fall in price—have risen 59% since last month as Trump gained steam, according to financial analytics firm S3 Partners.
Trump's worst relative showing in the past few months was Aug. 9, when a closely watched opinion polling average showed him nearly 8 percentage points behind Democratic rival Hillary Clinton. Her lead has tightened to about 3 points, according to the RealClearPolitics average, although it is off lows of less than 1 point earlier this month. The latest Reuters/Ipsos poll released on Friday gave Clinton a 5-point lead over Trump, with 43% of likely voters.
"Shorting the EWW ETF may be a vehicle to bet on Mr. Trump's success in being elected the next president of the U.S. and his willingness to address the long-standing Mexican trade imbalance," Ihor Dusaniwsky, S3 Partners' head of research, said in an email interview. "In other words, as Trump's popularity rises, the chances of a negative impact on the Mexican economy rises."
But it is not just shorts. The fund's price has also tended to suffer when polling averages and betting markets forecast Trump doing better. By contrast, the fund has tended to rise with Clinton's prospects, according to a Reuters analysis of market data, the polling averages and PredictIt prediction market data over the last quarter.
The ETF saw a mild rebound this week after Clinton was seen by most as besting Trump in their first presidential debate last Monday.