Mexicans have elected anti-establishment Andres Manuel Lopez Obrador as president, dealing a potential blow to the business-friendly parties who have governed the nation for decades. Past statements have caused concern that his nationalist stance could reduce the chances of a successful outcome to NAFTA talks with the US. His plan to favor Mexican content in government procurement has echoes of Donald Trump's “America First” platform. Obrador has also expressed reservations about the privatization of Mexico's energy sector and has promised public works and welfare programs that could swell government debt.
But we believe investors should withhold judgment until the new president lays out a more detailed policy plan.
- Obrador's platform remains relatively vague. He will only take office on 1 December, so he will have time to flesh out his policy program.
- So far, he has struck a relatively constructive tone on trade. Although he has criticized NAFTA for displacing small farmers, he has indicated that he is not in favor of putting up protectionist barriers.
- Obrador has made efforts recently to win over business leaders, a group he has in the past argued were part of a "mafia of power."
So assuming the rhetoric from the President-elect remains moderate, we expect short-term support for Mexican markets, including equities, sovereign bonds, and the peso. We will monitor for any signals on US trade talks, but think the symbiotic nature of the Mexico-US relationship supports our base case for both countries finding common ground to modernize NAFTA.
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