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Swine flu is putting more pressure on a Mexican economy already weakened by the U.S. downturn, but it isn't likely to immediately impact Latin America mutual funds, as most are already heavily focused on Brazil.

Some exchange-traded funds did take a dip earlier this week as the swine flu news took over headlines. "There might have been a little bit of swine flu rejuggling," said Scott Burns, director of ETF analysis at Morningstar. "Concerns over it were in evidence in some of the trading earlier in the week. Some of the sectors have recovered as other factors have overwhelmed it."

William Landers, manager of BlackRock Latin America Fund (MDLTX), said, "We still need to wait and see how this thing is going to play out." This is not like the 2003 scare over Severe Acute Respiratory Syndrome, he cautioned. "From everything we read about it and hear about it, it is curable."

The outbreak of SARS in Asia in 2003 hit shares of airlines hard, and investors are again dumping airline shares with the current flu fear as well.

Funds that invest in Latin America were strong performers in 2006 and 2007, but suffered disproportionately in 2008, plummeting more than 50% on average. This year through April 29, the funds have gained 20.9% on average, according to Morningstar.

As the two largest markets in Latin America, Brazil and Mexico dominate most Latin American funds. Brazil has been a much larger focus for managers like Landers, however, partly because Mexico's economy has already suffered along with that of the U.S.

BlackRock Latin America has been overweight Brazil since 2003, and currently has about 75% of its assets invested in Brazil, compared to about 17% in Mexico.

Brazil's exports represent about 16% of its gross domestic product, while Mexico's represent about 30% of its GDP, with most of those coming to the U.S., so the U.S. downturn has affected it to a much greater degree, Landers explained.

Brazil's vibrant domestic economy can provide some buffer from the global slowdown, he said. In contrast, Mexico, not too attractive even before the flu outbreak, is now even less so. Concerns about swine flu have shut down many sectors temporarily in Mexico, decreasing tourism, an important source of revenue. Some specific stocks, such as meat producers, will be affected, Landers said.

However, some stocks could benefit. For example, people may use their cell phones even more due to the outbreak, he said. American depositary receipts of regional wireless provider America Movil S.A.B. (AMOV) account for about half of BlackRock Latin America Fund's Mexican weighting. As the No. 1, 2, or 3 player in virtually every country in Latin America, the company is more a Latin American story than a Mexican one, he said.

Bill Rocco, a senior fund analyst at Morningstar, said that any natural disaster - be it a disease or a typhoon - illustrates why investors want to be broadly diversified in terms of geography. In a given year, there are going to a be a variety of unpredictable headline events that can have a negative impact, he said. "If you're focused on a particular region or market, that event is going to have a disproportional impact."

Among the ETFs that appeared to be impacted by the news, iShares Dow Jones Transportation Index (IYT) "took a big dip" Monday, its share price moving to $54 from $56, though it has since recovered, Burns said. The shares closed at $56.20 Thursday, up 1.2%, according to FactSet.

iPath Dow Jones-AIG Livestock Total Return Sub-Index ETN (COW) also dropped at the open Monday, and hasn't yet recovered, said Burns, noting that it's a thinly traded ETF. Shares of the livestock ETF closed at $29.64 Thursday, down nearly 1.9%.

Shares of iShares MSCI Mexico Investable Market Index (EWW) closed at $31.24 Thursday, down about 2.1%, FactSet said.

A spokeswoman for Barclays Global Advisors said the company didn't see any unusual movements in the MSCI Mexico ETF, but did notice movement in its iShares S&P Global Healthcare fund (IXJ), which holds Roche Holdings AG, the maker of flu remedy Tamiflu. This week on average, share volume for the ETF has increased almost eight times what it was last week, she said.

Claymore/NYSE Arce Airlines (FAA), which tracks a global airline index, also dropped at the open on Monday, but has since recovered, Burns said. Shares of the ETF closed at $19.45 Thursday, down nearly 1%, according to FactSet. "We've seen an increase in the number of shares traded," said Christian Magoon, president of Claymore Securities Inc.

-By Daisy Maxey, Dow Jones Newswires; 201 938 4048; daisy.maxey@dowjones.com