Even with the hype of a possible flu pandemic, the markets managed to remain positive through the week. Mexico will take the lead as we make the next critical move next week.

As a guy that has spent way too much time in rough water, I absolutely detest the clichéd phrase “a perfect storm,” but when it is apt I cannot help but use it. So here goes. This week has been a perfect storm for Mexican investors.  It physically hurt to write that sentence.

As if a bloody and growing drug war was not enough, Mother Nature threw Mexico a deadly flu outbreak and a 6.0 earthquake earlier this week. It was enough to force investors to flee back across the border.

Hard hit were the country’s pig producers like Smithfield Foods (NYSE:SFD), its cement makers like Cemex (NYSE:CX) and of course, its airports like Pacific Airport Group (NYSE:PAC). All of these companies were down by (or real close to) double-digit percentages during the week.

Even Mexico’s telephone and television providers were hit by the news. Apparently the worst symptom of the swine flu is falling share prices.

Even the Mexico peso was smacked hard on Monday, dropping by more than 4%.

Back at the feeding trough

Fortunately today has been a healthy reprieve from the fallout. There has been little to no signs of a worsening flu pandemic. People are not dropping like teenage girls at a Beetle’s concert (or an Obama sighting). And share prices have found enough of a reason to continue their climb even after a solid week of gains from the equities market.

Wall Street appears to be undecided about next week’s action, however. About half of the crowd is calling for a fizzle, while the other half is calling for more gains based on signs the economy is improving at a faster-than-expected rate (the stimulus worked!).

The answer will come from Mexico. Watch the iShares MSCI Mexico ETF (NYSE:EWW), which has the perfect ticker considering the current flu scare, over the next few trading days. It will be a strong indication of what Wall Street thinks of Mexico’s economic chances.

If the fund lags the market, I expect the equities markets to eventually turn around and follow Mexico into the red. If the ETF is a strong leader, however, it means the fears were way overblown and the equities market as a whole is undervalued.

Just as this pandemic mess appears to have started in Mexico, hints about where the American markets are headed could emerge from the region early next week.

As much as I hate to admit it, the Obama administration did the right thing by keeping the borders open. It gives us an opportunity to sneak across the Rio Grande and grab some profits.

Source: Bears vs. Bulls: What About the Pigs?