Mexico: Spill-over effects - Nomura

Analysts at Nomura explain that recent developments in US politics and the likely detrimental effects it may have on the prospects for policies to be passed will likely have some spill-over effects on markets in Mexico.

Key Quotes

“Indeed, a scenario in which developments deteriorate further for the current administration poses non-negligible risks to our recommendations to be long USD calls. However, it is important to remember that current USD/MXN levels arguably already reveal market expectations that have almost fully priced out the original threat to Mexico’s economy implied by the adverse trade rhetoric during the US presidential campaign. Therefore, it is not immediately obvious to us that the extreme case of a weaker-than-anticipated Trump presidency will necessarily lead to a sustained appreciation trend in MXN from this point.”

“At this juncture, and in coming months, the risks associated with political developments in Mexico (State of Mexico election on 4 June and general elections in 2018) should remain a very important consideration for investors. There are potentially other affected channels (e.g., commodity prices) that can be monetised in the LatAm space; this could be captured through long USD/CLP-type structures (medium-term sentiment in CLP has improved considerably on the initial rally in copper prices).”