Investors Are Losing Confidence in One Country's Raging Bull Market

We know most investors give in when times get tough...

That's a trait that has existed in the market for centuries. But what surprises me is when I find fear running wild in the thick of a bull market.

That's exactly what's going on in a part of the financial world that few investors focus on... Mexico's stock market.

The iShares MSCI Mexico Fund (EWW) is hovering just below multiyear highs. It's up 13% on the year. But investors are heading for the exits. Shares outstanding for EWW recently hit a 12-month-plus low. That means more upside is possible for this market.

Let me explain...

Tracking sentiment is one of the best ways to get an advantage as an investor. And if you're looking to invest in an entire stock market, then shares outstanding are a fantastic tool.

By gauging share counts in exchange-traded funds (ETFs), we can see how investors feel about a market. That's because those funds can create or liquidate shares based on investor demand.

If folks want to own Mexican stocks, then EWW can create more shares to meet the new interest. But the opposite is also true...

If folks want nothing to do with Mexico's market, EWW cuts shares as investors head for the hills.

Recently, EWW's shares outstanding hit their lowest level since May 2020. Take a look...

Since January, interest in EWW has fallen. The fund's share count is down by 40% in a little more than nine months.

Again, this is happening while EWW is in a strong bull market. You can see the boom in the chart below...

That's the boom investors have been bailing on in 2021. But history shows that when investors lose confidence like this, it can mean the bull market has more upside potential.

If we look at other times when EWW's shares outstanding have hit multiyear lows in the past decade, we can see this pattern shake out...

Similar cases happened in 2012, 2016, 2018, and 2020. Each led to more gains in EWW over the next year. Take a look...

These were all multiyear lows in EWW's shares outstanding. Essentially, this highlights when investors were most bearish on Mexican stocks. But as you can see in the table, each case was a great time to own EWW...

The biggest winner was our most recent example in September 2020. Buying at this low point in sentiment would have led to a 52% gain over the next year.

Now, that was a standout return. But it wasn't the only one worth noting. In fact, we saw two other double-digit movers (and a small 5% gain) following the other lows in sentiment.

Overall, investors are bailing... even though times are good. And when they've given up in the past, that has pointed to more upside in EWW over the next 12 months.

Again, few investors have Mexican stocks on their radar. But that's a mistake today... because this booming market has a lot more upside ahead of it.

Good investing,

Chris Igou

Further Reading

When a stock hits oversold territory, a turnaround is usually right around the corner. And with investors fleeing this market, we could be in for double-digit upside ahead... Read more here: This Beaten-Down Market Could Jump 16%.

"It's almost always smarter to buy into strong trends," Chris writes. But every so often, catching a downtrodden market can lead to major outperformance in the short term. And that's exactly the case in one market today... Get the full story here: This Market Crashed... Now It's Ready for a Big Short-Term Jump.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

Alphabet (GOOGL)… tech World Dominator
Microsoft (MSFT)… tech giant
Nvidia (NVDA)… chip giant
Cloudflare (NET)… network security
Automatic Data Processing (ADP)… payroll giant
Intuit (INTU)… tax-prep software
Bank of America (BAC)… financial giant
UnitedHealth (UNH)… health care giant
Novo Nordisk (NVO)… pharmaceuticals
Thermo Fisher Scientific (TMO)… life sciences
Motorola Solutions (MSI)… telecom
CBRE Group (CBRE)… real estate services
Home Depot (HD)… home improvement
SiteOne Landscape Supply (SITE)… landscaping
Cintas (CTAS)… uniform supplier
Nestlé (NSRGY)… snacks and candy
Costco Wholesale (COST)… membership-only stores

NEW LOWS OF NOTE LAST WEEK

Bristol-Myers Squibb (BMY)… pharmaceuticals
Campbell Soup (CPB)… soup
AT&T (T)… telecom