Investors have long sought> high risk/high reward opportunities in emerging markets and Mexico has been no exception. As a major U.S. trading partner rich in energy, raw materials and relatively cheap labor, the republic to the south has many allures. But as pestilence, violence and now a new natural disaster attests, investing in Mexico is also fraught with uncertainty.
Global markets were rocked Monday on news that swine flu is spreading around the globe. It's thought to have started in Mexico and so the country is locking itself down and investors are fleeing its equities. It's the last thing any country, or its market, needs. As if that weren't enough, the flu outbreak comes hard on the heels of escalating warfare among rival Mexican drug gangs.
And just when investors thought it couldn't get any worse a powerful 6.0 earthquake struck 50 miles outside the capital, sending office workers scrambling into the streets.
This trifecta of rotten luck has to have investors in Mexican stocks rethinking their positions. Is the country just star-crossed or is this a rare buying opportunity for an aggressive emerging market portfolio? If you listen to the experts and have a little money to risk the answer may be the latter scenario.
The selloff just might be creating some bargains, if only because of Monday's indiscriminate selling. The iShares MSCI Mexico (EWW)
David Riedel, head of emerging markets investment firm Riedel Reseach, says the headlines will cause at least short-term volatility in some other sectors, too. Alsea, the franchisor for Starbucks (SBUX)
Even Reidel admits that s a big if. However, there are ways to take advantage of the situation without making a big bet on a single country fund like the iShares product. Indeed, Bill Rocco, Morningstar s emerging markets funds analyst, says the epidemic and the subsequent selloff should underscore the value of a diversified portfolio.
"It's a reminder of why you don't want to focus on a particular emerging market, he said. Mexico is the second-largest market in Latin America, but you shouldn't be in just a Mexico fund, or even a Latin American fund. You'll do better to have exposure to 40 individual markets through a diversified emerging markets fund."
One way to bet on Mexico while shedding some risk is to buy T. Rowe Price Latin America (PRLAX),
Another option is the Vanguard Emerging Markets Stock fund (VEIEX)