Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Mexican markets poised for leftist win, but wary of landslide

Stock MarketsJun 29, 2018 05:10PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Mexican presidential candidate Andres Manuel Lopez Obrador addresses supporters during his closing campaign rally at the Azteca stadium, in Mexico City

By Miguel Gutierrez and Saqib Iqbal Ahmed

MEXICO CITY/NEW YORK (Reuters) - Mexican markets have rallied this month into a likely win by the leftist frontrunner in Mexico's presidential election on Sunday, but local assets could sell-off if a landslide victory for his party forms a congressional majority.

Ahead of the July 1 vote, Mexico's peso firmed to its strongest since late May in early trading Friday before reversing direction and sinking around 1 percent. Stocks (MXX) rose to their highest in more than eight weeks.

Andres Manuel Lopez Obrador, a fierce critic of the ruling elite, held a wide margin in final polls. He would become Mexico's first left-leaning leader for decades if elected on Sunday.

Analysts said Lopez Obrador's economic team has been out in force to mollify investor concerns about a possible stark departure from pro-market policies or fiscal discipline. So far, markets are betting on moderate polices in line with Peru's Ollanta Humala or Brazil's Luiz Inacio Lula da Silva.

"His discourse has moderated and his economic advisors have been seeking a vote of confidence," said James Salazar, an analyst at CI Banco.

But bets in the options market suggest there could be big moves in the peso and stocks. One-month implied volatility , a gauge of expected near-term currency movement, has fallen from a spike earlier in June. But it remains at elevated levels seen back before the inauguration of U.S. President Donald Trump, who many worried could rip up the NAFTA free trade deal with Mexico and Canada his first day in office.

Karl Schamotta, a strategist at Cambridge Global Payments in Toronto, said the market had largely priced in a Lopez Obrador victory and was betting on moderate economic policies.

"There is an assumption that he is campaigning from the left and will govern further to the right," he said.

Some analysts said the end of uncertainty could help the peso post modest gains after a victory by Lopez Obrador, or AMLO as he is known. They said the currency could rally sharply if there was a surprise victory by either of his opponents, Ricardo Anaya from the right-left coalition or the ruling party's Jose Antonio Meade.

But they cautioned that the peso could tumble on fears of more radical policies if Lopez Obrador's National Regeneration Movement (MORENA) party gains a majority in Congress.

"An AMLO outperformance could lead to a sell-off of Mexican assets," said Nomura analyst Benito Berber.

Results of congressional races may not be clear early next week. But if Lopez Obrador wins more than 42 percent of the presidential vote, a MORENA majority looks much more likely, analysts said.

Schamotta said volatility levels suggest the peso could move between 3 percent and 5 percent, either way, if the election throws up an unexpected outcome, with a more muted move in the event of an expected Lopez Obrador victory.

Bets in the U.S. equity options market are slightly skewed toward potential losses in stocks, with more put options than calls in play, according to options analytics firm Trade Alert.

Open contracts on the $1.12 billion U.S.-listed iShares MSCI Mexico Capped ETF (P:EWW) imply a roughly 4 percent swing in the shares, in either direction, by July 6.

"Net-net looks like positioning of late has a bearish bias," said Jim Strugger, derivatives strategist at MKM Partners in New York.

Mexican markets poised for leftist win, but wary of landslide
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email