Breaking News

Market Extra: Mexico’s presidential election: Investors need to know these key factors

Sunday’s presidential election will give Mexico a brand new leader, and with unorthodox candidate Andrés Manuel López Obrador leading in the polls, marketplace participants are making ready for what his management may imply for Mexican property and already hectic relations with the U.S.

“It can be a huge marvel if there was an disillusioned and AMLO didn’t win," mentioned Graham Stock, emerging-market sovereign strategist at BlueBay Asset Management, calling the candidate by means of his acronymic nickname, and anticipating calm buying and selling in the Mexican peso USDMXN, +1.0432%  come Monday. The peso is a popular emerging marketplace currency play, because of the Bank of Mexico’s prime in a single day interest rate of 7.75%.

Others are less positive, arguing that even supposing there’s little suspense around the outcome of the election, uncertainties surrounding the next government stay.

“I do think that the peso will sell off some on Monday,” mentioned Christian Lawrence, senior FX strategist at Rabobank. “It may now not cross to 21.50 straight away, but that degree is in achieve.” The dollar ultimate bought 19.6694 pesos, down Zero.three% on Friday. Since the beginning of the yr, the peso is little modified but in damaging territory, in step with FactSet, whilst the iShares MSCI Mexico ETF EWW, +Zero.47%  was down 5.5%. The Mexican 10-year government bond LMBMKMX-10Y, -Zero.54%  ultimate yielded 7.566%, on the subject of a two-month-low on Friday. Yields and prices transfer in opposition to one another.

Check out: Here’s what currency buyers should consider when coping with geopolitical possibility

Lopez Abrador, who has two times run for president and is the previous mayor of Mexico City. This time, he’s working at the head of a party he based. In many ways, he's seen as Mexico’s resolution to the populist wave emerging all over the world, albeit from a starkly left-leaning standpoint. “Mexico hasn’t became to the left since the 1980s,” Stock instructed MarketWatch. Now traders are fearful what that could imply for Mexican property, for the reason that the rustic is a large beneficiary of international direct investment.

Mexico, Canada and the U.S. have been in renegotiation talks regarding the North American Free Trade Agreement since August 2017, reputedly with no sign of ending

Some consider that Lopez Obrador might be more effective as a pace-setter than he's given credit for: “He ran a horny orthodox Mexico City government during his time,” Stock mentioned. “The threat is that Amlo is less predictable with problems like Nafta, even if he mentioned he would proceed the road of negotiation that Mexico has gone down.”

“I in finding it arduous to consider that he’ll simply be average,” Lawrence mentioned, who also mentioned federal transfers shored up Mexico City’s finances during Lopez Obrador’s tenure.

“Unfortunately, Amlo appears set to opposite some of Mexico’s recent economic reforms, probably environment back the rustic’s economy,” mentioned Eric Lascelles, leader economist at RBC Global Asset Management.

If victorious, it will come all the way down to what Lopez Obrador says in his would-be acceptance speech after which, during first few days in workplace, he wouldn’t assume till December, marketplace participants mentioned. He would most likely get penalized by means of the markets if he began his time period off with too competitive a stance, Stock mentioned.

Local Mexican companies have already been large dollar DXY, -Zero.89%  consumers in the lead up to the election, Stock added, to give protection to themselves in opposition to any such hunch in the peso.

Don’t miss: The dollar gained’t win the ‘triple crown’ in 2018, Pimco says

“Mexican corporates have been hedging out their positions, whilst international traders haven’t executed that. That may imply that foreigners have a extra sanguine view of a left-leaning government, or that they view the peso as reasonable both manner,” he mentioned.

During the next president’s time period, four out of five seats on Mexico’s central bank’s board of governors will come up for reappointment. This will play out over the next six years, with the first in 2019, Lawrence mentioned.

“If Amlo goes the friends and family direction along with his appointments, traders may get started worrying about Banxico’s independence,” he mentioned of the central bank. “While this is no instant concern, Mexico’s large percentage of international traders might be spooked by means of an inner circle appointment.”

Anneken Tappe is a markets reporter for MarketWatch. She is primarily based in New York.

We Want to Hear from You

Join the dialog