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Why You Should Consider Investing in this Overlooked Emerging Market

China, Brazil and Russia are all struggling, so where is an emerging market investor to turn? You don’t have to look as far as you think.

Traditionally, the best emerging market stocks typically come from the BRICs—Brazil, Russia, India and China. But that narrative is starting to change.

Brazil is a mess after seven years of zero-to-negative growth. Russia is utterly untouchable under Vladimir Putin right now. China’s economy has backpedaled to a “mere” 7% annual growth. Of the four BRIC nations, only India appears to be on the uptick under relatively new Prime Minister Narendra Modi.

To fill the emerging market void, international investors must turn their attention beyond the BRICs. And Mexico is the first place they should look.

In the emerging market investing universe, Mexico is usually little more than an afterthought. But there are a number of things going right South of the Border at the moment:

  • Solid GDP growth. At a time when much of Latin America is in economic decline, Mexico’s economy is expanding. This year’s anticipated GDP growth rate is 2.5%, trailing only Colombia (3.2%) and Peru (3%) in Latin America, and much better than Brazil’s expected -3.3% decline.
  • Low unemployment. The Federal Reserve is perhaps two weeks away from boosting interest rates for the first time in seven years in part because of the improvements in the U.S. unemployment rate, now down to an even 5%. Mexico’s unemployment rate is even lower, at 4.3%, and hasn’t been higher than 4.7% at any point this year.
  • President Enrique Pena Nieto. Like Modi in India, Nieto’s leadership since being elected in 2012 has had a lot to do with Mexico’s turnaround. Nieto has reformed minimum wage, fought for women’s workers’ rights, opened up the country’s oil fields to foreign investment, broken up the nation’s business monopolies, and remained close trade partners with the U.S. Mexico still has its problems—poverty, corruption, a preponderance of drug cartels. But there’s a lot more to like about Mexico than there used to be.
  • Booming auto industry. Mexico’s manufacturing sector is growing, and automakers are leading the charge. Mexico is the fourth-largest car exporter in the world, trailing only Germany, Japan and South Korea. Free trade with 45 countries has been a major attraction for auto manufacturers, as is the fact that 70% of its exports go to the U.S.

All of these positive economic factors have propped up Mexico’s stock market in a turbulent year for global markets. Gains in Mexico’s IPC index this year have been modest (1.5%), but when you compare them to the -13.7% loss the average emerging market has suffered in 2015 (as measured by the EEM) and the -8.9% decline in Brazil’s BOVESPA index, it bodes well for 2016 if global markets can turn the corner.

At a time when U.S. stocks are stuck in the mud and most emerging markets are struggling, Mexico is an overseas option worth exploring. The auto industry is the country’s chief economic driver, but most of the companies driving it are large multinationals that do much of their business elsewhere. The best way to invest in Mexico is via an entirely different industry.

Paul Goodwin, our resident emerging markets expert and chief analyst of the Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) advisory, recently recommended two Mexican ADRs (American depositary receipts, a.k.a. foreign stocks that trade on U.S. exchanges) from this particular industry to his subscribers. The results have been nothing short of spectacular: since recommending them, these two Mexican stocks have been the two best-performing stocks in the Cabot Global Stocks Explorer’s 10-stock portfolio, with gains of 23% in two months and 14% in less than four months.

To find out what they are, or to see what other emerging market stocks Paul has in the Cabot Global Stocks Explorer portfolio, click here.

In the meantime, keep a close eye on Mexico. Opportunities in emerging markets are difficult to find at the moment, but our neighbors to the south have been quietly gaining steam while other developing nations around the world have faltered.

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Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .