Why Mexico’s Election Matters to Global Markets

On June 2nd 2024, Mexico prepares for a rare landmark election, possibly electing its first female president.

Claudia Sheinbaum, ex-Mayor of Mexico City, and Xóchitl Gálvez, a former senator, lead the polls.

Significantly, Sheinbaum enjoys backing from the outgoing President, known popularly as AMLO.

Global markets are closely monitoring this election. Morgan Stanley analysts emphasize Mexico’s pivotal role in redefining the global supply chain.

They suggest that the election results could greatly enhance nearshoring, which relocates production nearer to consumer markets.

In 2021, Mexico surpassed China as the largest U.S. trading partner, a shift that began in 2018 but accelerated post-pandemic.

Deloitte predicts this could increase Mexico’s GDP by 3% within five years.

Morgan Stanley forecasts minor yet favorable policy shifts by the new government, focusing on fiscal and infrastructure issues.

These adjustments may include public-private partnerships, potentially reducing government spending and promoting supply-side reforms.

Analysts are keen to see how the new leaders will manage energy and fiscal policies, crucial for economic stability.

Mexico’s strong ties with the U.S. and the advantages of nearshoring offer substantial benefits, yet major reforms are essential for full leverage.

Why Mexico’s Election Matters to Global Markets

The election might boost undervalued assets if the government strengthens public-private ties and reforms energy and concession policies.

Successfully tackling these supply-side challenges could further maximize nearshoring benefits.

Assuming political continuity, Morgan Stanley still expects notable stock market gains, particularly for Pemex, the state oil firm.

The firm projects Mexico’s stock index, the MexBol, to climb to 65,000 points, up 17%, making Mexico a top market in Latin America alongside Brazil.

Additionally, the Mexican peso, which is highly correlated with the U.S. economy, now seems overpriced.

With a potential slowdown in the U.S. economy over the next year, a recalibration of the peso’s value is likely.

Remarkably, in April, the peso hit its highest rate against the dollar since 2015.