Capital Economics has Expected poor performance The Mexican peso and broader financial assets are expected to decline in the coming year due to political and economic instability.
The peso, which has recently fallen about 15% against the dollar since early April, is still seen as overvalued despite its sharp decline in July and August.
Mexican financial assets, including stock indices and local-currency bonds, have lagged their emerging-market peers in dollar terms this year, with the exception of Mexican hard-currency bonds.
The weak performance is due to three main factors: controversial constitutional reforms proposed by President AMLO, the unwinding of the yen-funded carry trade, and concerns about the impact of a potential US recession on Mexico due to its close economic ties with the United States.
The future performance of Mexican financial assets is likely to depend on these issues. Although some of the bad news may already be priced into current asset prices, the domestic outlook remains challenging.
The next president, Sheinbaum, will face economic difficulties, including deteriorating public finances and a debt burden on the state oil company Pemex, which could affect Mexico’s sovereign credit rating.
Capital Economics notes that if the US avoids a recession, global risk appetite could remain strong, benefiting Mexican assets and the peso. However, a potential interest rate cut by the Bank of Mexico, following the Fed’s monetary easing, could cap gains.
Moreover, the outcome of the US election poses a risk, as Mexican assets are likely to suffer if Trump wins due to his policies on immigration and tariffs.
Investor sentiment towards Mexican financial assets could deteriorate further, as rising risk premiums suggest. Despite the depreciation of the peso, it is still considered somewhat overvalued and could weaken further.
He noted that the current exchange rate of 19.4 does not reflect historical weakness, suggesting there may be room for further declines. Capital economy.
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