Tales from the Emerging World
Mexico: Priced for Crazy ACTIVE FUNDAMENTAL EQUITY | MACRO INSIGHT | 2018
With Andrés Manuel López Obrador (“AMLO”) well ahead in the polls, the question many Mexico watchers are asking is which AMLO will rule if he wins the July presidential election: the radical who has threatened to spend heavily and roll back the privatization of the oil economy, drawing comparisons to Hugo Chavez? Or the moderate who served as mayor of Mexico City in the 1990s, and worked well with the private sector there? We would frame the question a bit differently. Fears of AMLO and his clashes with President Donald Trump over the renegotiation of NAFTA have already knocked the peso down to a valuation close to the lows hit during the tequila crisis of 1994. With the market pricing Mexico at near crisis levels, despite the deep stability of the economy and the emerging comeback in oil production, how much worse can it get? If AMLO governs less radically than the worst case expectations, Mexican assets have nowhere to go but up. Mexican stocks are at a 15-year low relative to other emerging markets.1 AMLO is not likely to take office overconfident. His lead in the polls is largely a function of disgust with corruption scandals and the wave of unpunished crime under the ruling Institutional Revolutionary Party government, as well as the weakness of his main rival, Ricardo Anaya, a boyish looking proponent of the status quo. AMLO, if he wins, would also be poised to reap the fruits of reforms sown by current president, Enrique Peñ̃a Nieto, and would have to be politically suicidal to launch radical experiments now.
FactSet as of May 2018.
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AUTHOR
GLOBAL EMERGING MARKETS TEAM