Hedge fund guru, Jim Chanos, has been telling investors to avoid China like the plague. And he’s been slamming the world’s second largest economy for many years. In May, Chanos described China as being in the midst of an epic property bubble.
Fair enough… Chanos sees parallels between the U.S. meltdown and China’s “ghost towns.” Yet there’s one fact that Chanos can’t gloss over. The Guggenheim China Real Estate Fund (TAO) has gained 37% year-to-date and is sitting atop 52-week highs.
Granted, the China Shanghai Composite may have diminished by 17% or more in 2012. And the popular iShares China 25 Index Fund (FXI) may be flat on the year. Ye those that have paid attention to the popularity of REITs abroad are not so surprised by the success of Guggenheim China Real Estate (TAO).
Similarly, why would anyone invest in Mexico? Haven’t there been countless drug cartel attacks over the border? Didn’t real estate activity along the Baja Peninsula dry up completely in the 2008 collapse? Aren’t there consistent border squabbles related to immigration policy uncertainty?
In spite of well-documented troubles, Latin America’s 2nd largest economy may indeed overtake the more widely discussed Brazil. And with 80% of its exports going to the U.S., Mexico’s fortunes seem tied to the quantitative easing policies of the U.S. Equally impressive, countries like China have shifted manufacturing costs (and jobs) to Mexico where wages are still significantly less than they are north of the border.
In sum, the road may have been rocky for iShares MSCI Mexico (EWW) in 2012. Yet it is road where 20%+ gains are better than many emerging markets and most developed markets. Moreover, the current price of EWW is above both a 50-day and a 200-day trendline.