What Wall Street Strategists Are Saying About Sheinbaum’s Landslide Victory in Mexico

(Bloomberg) -- Signs that Claudia Sheinbaum will take office with a strong majority in Congress sent Mexican assets lower, as traders fear the incoming leader may have the legislative support to pass anti-market reforms.

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The Mexican peso led losses among more than 140 currencies tracked by Bloomberg, sinking 2.9% versus the greenback as of 9:40 a.m. in New York. Dollar bonds fell the most in emerging markets and 10-year interest-rate swaps jumped 15 basis points. Sheinbaum secured a landslide victory to become Mexico’s first female president.

Read more: Mexican Peso Slides as Ruling Party Landslide Spooks Investors

While polls in the run-up to the vote showed she was comfortably ahead, the results in Congress — where the ruling Morena party was cruising to decisive wins in both houses — surprised investors.

“Everything is doable. They have a very important mandate,” said Shamaila Khan, UBS Asset Management’s head of fixed income for emerging markets and Asia Pacific. “Are they going to use it to resolve some of the important issues including fiscal and the energy reform? Or will they focus on other priorities that may not be considered market-positive?”

Investors will now focus on Sheinbaum’s picks for her economic team and her strategy to tackle the country’s large fiscal deficit and Petroleos Mexicano’s debt load. Pemex dollar notes mostly held steady on Monday.

Here’s what others on Wall Street are saying:

Gordian Kemen, head of emerging-market sovereign strategy at Standard Chartered Bank

  • Investors were “taken totally by surprise with this apparent landslide of the Morena party; the possibility of a supermajority in congress would be a material game changer for Mexico”

  • MXN was “quite vulnerable given heavy long positioning as a preferred carry play”

  • “I can see the market getting concerned about energy policy, fiscal stance, but also monetary policy”

Guillaume Tresca, a global emerging-market strategist at Generali Asset Management

  • “The risk for Morena to have a supermajority can be negative in the long run for foreign corporates”

  • “For Pemex, it has much less an impact. Pemex is “de facto“ guaranteed by the government of Mexico. So a reform of the energy sector, it would be hardly a problem for Pemex”

Francisco Campos-Ortiz, an economist at Deutsche Bank

  • The backstop for the Mexican peso is Banxico

  • “It’s more likely that they hold in June, and once the market internalizes that, I would expect some rebound in the MXN, but it won’t be a full comeback — at the end of the day, it’s a fact that the risk premium is going up”

Olga Yangol, head of emerging-market research and strategy at Credit Agricole

  • “The correction in the MXN so far is fairly contained relative to the full potential implications of Morena’s landslide”

  • “Investors have gotten used to buying the dip on MXN over the past three years and the news may need to fully sink in before we see a more decisive devaluation”

Bret Rosen, economist and strategist for Latin America at EMSO Asset Management

  • Markets will await initial signs around Sheinbaum’s cabinet, especially the pick for her finance minister; an important signpost comes as the 2025 budget gets defined as well

  • Further weakness in the peso would likely concern the central bank, especially ahead of its June meeting

Edwin Gutierrez, head of emerging-market sovereign debt at Abrdn Plc

  • “No one expected them to get a supermajority”

  • “The market entered these elections long MXN, so there could be a nice shakeout.”

Brad Bechtel, global head of FX at Jefferies in New York

  • “Investors are nervous about what might be in store for her new administration”

  • “Given the size of the position and the lack of size in the liquidity of the MXN, there is a squeeze as investors cut their risk there”

  • “Eventually we will bounce back in the MXN unless she does something drastic down the road from a policy perspective”

Marco Oviedo, a senior strategist at XP

  • The Mexican peso “was a favorite trade with a lot of positioning. Maybe in the next few days, it’ll go to 18 per dollar”

Shaun Osborne and Juan Manuel Herrera Betancourt, strategists at Scotiabank

  • “A win of that magnitude could pave the way for significant constitutional reforms”

Rodolfo Ramos, strategist at Bradesco BBI

  • Removed shares of Banorte from Bradesco’s Mexico picks “to reduce regulatory/legislative risk”

  • “A careful bottom-up allocation is warranted in the current context of legislative risks, higher rates, global uncertainties, and still some domestic nuances”

  • Maintains a neutral recommendation for Mexico in Bradesco’s Latin America portfolio

(Updates with market move and analysts comments throughout)

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