How is the American Slowdown Impacting the Canada and Mexico ETFs

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

America has always been the market for the Canadian and Mexican economies. How will the slowdown in U.S. economy and import demand affect their respective exchange-traded funds (EWC) and (EWW)?

The US is the most important market for both Canada and Mexico, buying roughly 80% of their exports. But these are slowing together with the American economy. Canada’s gross domestic product expanded by just 0.8 per cent year-on-year in the last quarter of 2007, mainly due to a collapse in export volumes according to the Financial Times.

However, the article goes on to report that both Canada and Mexico, though, are better able to withstand US economic woes than in the past. While trade remains very important – exports are 47 per cent of Mexico’s GDP and more than a third of Canada’s, according to the Economist Intelligence Unit – both economies are more diversified. In Mexico, domestic demand is remaining strong and Canadian consumer spending is still vibrant.

The Canadian and Mexican balance sheets are also in much better shape than America giving policymakers fiscal surpluses and more flexibility to stimulate demand. Mexico’s external debt position has also greatly improved. Canada’s central bank, which has cut interest rates by 50 basis points since September, may do so again this week and this will help its overheated currency cool down and improve export competitveness.

Should you buck conventional wisdom and buy the Canadian and Mexico ETFs in the midst of a U.S. slowdown? Join Chartwell ETF and find out.