How to Invest in Mexico

Mexico is the largest trading partner of the U.S and it boasts a top-20 largest economy in the world. In Latin America, it’s the second-largest economy, with only Brazil ahead of it. Mexico is still considered an emerging market by most even given its strong economic position among world economies. There are good investments to be had in Mexico, but if you are a U.S. investor and you want to invest in Mexico, you should keep in mind the high correlation of the Mexican stock market with the U.S. markets. Consider working with a financial advisor if you want to invest in Mexican securities.

Overview of the Mexican Stock Market

Mexico’s economy was growing before the pandemic. Although the Mexican gross domestic product (GDP) declined by over 8% during the worst of the pandemic, it’s largely bounced back and is expected to be over 5% in 2021 and over 2% in 2022.

Mexico’s recovery success will be determined partly by the vaccination program for COVID-19, private investment and the economic situation in the U.S. It does, however, have strong institutions and is open to trade. The economic fate of Mexico is tied closely with that of the U.S. since Mexico has an export-based economy and the U.S. is its biggest customer, by far.

The main stock exchange in Mexico, the Mexican Stock Exchange or BMV, was a private company for 114 years until 2008 when it IPO’d and went public. Its location is in Mexico City, and it’s the nation’s only full-service stock exchange.

The main market index is the S&P/BMV IPC, where about 148 of the country’s largest and most liquid stocks are listed with a market capitalization of over $400 billion. Some of them even have U.S. counterparts, like Walmex and America Movil. Both of these stocks also trade on U.S. exchanges. The IPC exchange is broad-based with the sectors of consumer discretionary, financial, utilities, consumer staples, industrial and more represented.

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How to Invest in Mexico With ADRs

You can gain access to some of the stocks on the Mexican market using only an online broker, a free app or your current brokerage company. Some Mexican companies are on the NYSE and NASDAQ through the use of American Depository Receipts (ADRs).

ADRs are depository receipts issued by Mexican companies that can be purchased through your brokerage and traded on U.S. stock exchanges. ADRs are not available for all public Mexican companies. However, for those that offer them, they are one of the most convenient ways with which you can make an investment in Mexico.

How to Invest in Mexico With ETFs

Another convenient method of trading in Mexican stocks is by buying related exchange-traded funds (ETFs). Mexican ETFs are very similar to U.S. ETFs in that they trade throughout the day on the exchanges, but are baskets of securities like mutual funds. They are also usually industry-specific, allowing you to customize exactly where in the Mexican you want to focus.

Mexico-centric ETFs are on both the NYSE and NASDAQ. Pick your ETF carefully so it matches your investment goals and profile. You can purchase them from one of the digital wealth management companies like Betterment or a reputable broker like TD Ameritrade. Varying commission fees may apply to foreign purchases like these.

Using International or Mexican Brokers

You can invest directly in Mexico’s stock market by opening an account with an international broker regulated by the U.S. Securities and Exchange Commission (SEC) or with a Mexican stock brokerage. Both are going to be much more expensive than investing in ADRs or ETFs, although they may offer more exposure and help you further diversify your portfolio.

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Here are the steps you can take to trade securities on the Mexican stock exchange:

  • Open an international trading account with an international stockbroker. Some popular choices are Interactive Brokers, Fidelity and TD Ameritrade. Alternatively, open an account with a broker based in Mexico.

  • Fund your trading account with money. Check to determine if there is a minimum balance requirement and, if so, how much it is. If you work with a Mexican brokerage, there may be currency exchange fees.

  • If you’re planning to trade online, obtain access to the online trading platform used by your broker. Use it to practice trading in the Mexican markets.

  • Once the above steps are complete, you can start trading. There are transactions costs and fees with every trade, so you may want to opt for larger and fewer trades to minimize these costs.

Benefits and Risks of Investing in Mexico

Like any investment, there are pros and cons to investing in Mexico. This is especially true of foreign investors from the U.S., as there are additional costs and fees to worry about. So make sure you do your research before putting any money into Mexican investments.

While some Americans tend to see Mexico in terms of corruption, drug gangs and immigration issues, the country has a robust emerging market economy. Goldman Sachs even has its own emerging markets index called MIST. The acronym stands for Mexico (M), Indonesia (I), South Korea (S) and Turkey (T). If an investor is looking into emerging markets, there may be some good stock buys in Mexico, but it will take market research to identify them.

Mexico has an export-driven economy, which broadens its appeal to investors. That’s because the Mexican market has shown a diversity that many wealthier countries feature. Therefore, it should come as no surprise that the Mexican economy is seen as emerging internationally.

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Currency risk is always an issue if you buy directly from Mexico’s stock market. These are fees you simply won’t encounter by sticking to U.S. investments, so plan ahead for them.

The geopolitical risk of Mexico could affect stock prices due to the drug war that has lasted since 2006. Additionally, Mexico is subject to economic risk since its GDP turned negative early in 2019 before the pandemic. Emerging markets have a significant risk attached to their stocks. There’s also significant liquidity risk in emerging markets trading. It’s safest to stick with the stocks of large, well-known companies.

Bottom Line

Mexico has one of the largest economies in the world and it’s still growing. It has a stock market in which Americans can invest with relative ease due to the close ties between Mexico and the U.S. It’s important if you want to invest in Mexico to carefully do market research to identify undervalued securities. Mexico has an extra layer of risk due to the corruption in some industrial sectors and gang activity in the country.

Investing Tips

  • If you have questions about including Mexican investments in your portfolio, a financial advisor may be able to help Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Check out SmartAsset’s asset allocation calculator to help you structure your portfolio. Your asset allocation will become incredibly important as you approach retirement.

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