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?

Irwin says the decision by China Investment Corp (CIC), the country’s $200-billion sovereign wealth fund (SWF) to allocate $250 million in emerging markets means Latin ETFs could receive a big boost.

Irwin says China needs to diversify out the diving dollar and gain greater control of energy reserves – and Latin America serves both purposes best…

One of the biggest business stories of the year has literally been buried by the media – and it could cost you a lucrative opportunity.

On July 9, the China Investment Corp (CIC), the country’s $200-billion sovereign wealth fund, said it will start investing in global equity markets through its overseas asset managers, according to the China Securities Journal.

CIC said it will allocate $250 million to eight different overseas asset managers.

Why Big Media didn’t play this up more prominently is a real joke. CIC is the world’s sixth biggest sovereign wealth fund (SWF). The decision to start actively investing in emerging market equities is a clear indication that emerging markets cannot be ignored.

For readers unfamiliar with SWFs, they are huge investment organizations owned by central banks. They accumulate the trade surpluses and oil revenues, for example, for long-term investments. They are accountable to no one, although the International Monetary Fund is working with the leading SWFs to increase transparency.

You may have read about SWFs through their investments in several Wall Street financial firms including Citigroup (NYSE:C), Morgan Stanley (NYSE:MS), and Merrill Lynch (NYSE:MER). (In January, CIC said it would be looking for foreign managers to help invest in fixed income products, and their stakes in some of these American investment banks could be a likely source to tap.)

Like many dollar investors, CIC is getting hit hard. It’s the second-biggest foreign holder of U.S. treasury securities, with $490 billion. Japan ranks as number one with $600 billion.

CIC’s emerging markets push accomplishes two objectives: 1) diversifying out of their $1.7 trillion in foreign-exchange reserves, which are mainly in U.S. treasury bonds and other fixed-income assets; and 2) gaining greater control of desperately needed energy reserves.

We believe the second objective will figure prominently in CIC’s emerging-market investment strategy.

China is the world’s second-largest energy consumer. Oil comprised 20.3% of China’s total energy consumption in 2006. Coal is the prime energy source, but the pollution it spews is now a major financial drain in terms of worker productivity and environmental damage to agriculture. China is ramping up like mad its nuclear output.

Oil, however, plays an increasingly important in China’s energy mix. Just last month the government cut oil subsidies to the growing millions of new car owners. They will be forced to pay 18% more for a tank of fuel. It’s unlikely that this move will achieve China’s goal of cutting consumption, since the country had been previously been operating in an artificially regulated $80-a-barrel oil market. Given all the new shiny cars on the road, we don’t believe an extra 18% will amount to a hill of beans.

So if you make the assumption that oil will be a top priority for CIC, our compass points to a greater presence in Latin America. Since 2000, trade between China and Latin America has increased six-fold.

The business deals are not confined strictly to oil. Latin America is also rich in other commodities that China needs to continue is massive economic expansion. We’re talking about copper, iron, silver and other raw materials. But when it comes to oil in the region, China has been very active.

Here’s a quick rundown of China’s energy influence in Latin America…

– China’s Shengli International Petroleum Development Co. Ltd. inked a deal pact Bolivia’s state-run Yacimientos Petroliferos Fiscales. The agreements call for China to invest $1.5 billion over 40 years in Bolivia’s onshore oil and gas sector.

– China’s leading refiner Sinopec reached a $239 million deal with state-owned Petrobras for construction of a stretch of a major natural gas pipeline across Brazil.

– Sinopec also showed up in Cuba, where it an agreement with Cuba’s state-run Cubapetroleo to jointly produce oil on the island in January 2005.

– A Chinese-led consortium, which includes China National Petroleum Corp. and Sinopec, bought Canadian-based (NYSE:ECA) Encana’s oil and pipeline assets in Ecuador for $1.42 billion.

– In Peru, the China National Petroleum Corp. produces oil.

– The China National Petroleum Corp. also operates two Venezuelan oil fields in Venezuela and has committed to spend over $400 million in Venezuela’s oil industry. The China National Petroleum Corp. is working with Venezuela’s state oil company in the Junin 4 block of the Orinoco extra heavy oil belt, the world’s largest deposit of crude oil. Chinese investments in Venezuela total more than $1.5 billion.

For investors looking to capitalize on the CIC move into emerging market equities, Latin America seems to be a logical first step. You can do this by talking with your broker about Latin ETFs, or investigating Latin publicly traded oil companies such as Brazil’s Petrobras (NYSE: PBR).

Irwin Greenstein

Source: China’s Next Big Oil Play?