Mexican Election 2018
Presidential & legislature elections in Mexico
Latin American countries are exposed to a broad EM currency sell-off due to lingering political concerns and high foreign capital position. Of these countries, Mexico is the most vulnerable. While growth remains challenging due to NAFTA 2.0 negotiations, the timing of presidential elections adds a level of unwanted uncertainty.
On 1 July, Mexicans head to the ballot boxes, with leftist presidential candidate Andrés Manuel López Obrador (AMLO) holding a decisive 13pp lead in the polls. AMLO is widely viewed as an anti-market candidate, mostly due to his opposition to energy reforms. He has pledged to reduce poverty, end corruption and manage US president Trump. Yet despite general disapproval of private investment in the energy sector, we believe AMLO will be a pragmatic president who is unlikely to make meaningful changes to Mexico’s current economic policy.
Elections are always an uncertain business, yet this election cycle takes it to a new level. Besides the potential political misstep, which could bring down a candidate, Mexico faces idiosyncratic issues. First is the soaring death toll of candidates and other political officials, which has reached 35 this election season, according to unofficial numbers. The assassinations reportedly led dozens of candidates to pull out of races.
Second is the direction of new NAFTA agreement. Despite a significant push by the US to meet congressional deadlines, NAFTA 2.0 was not reached. Treasury Secretary Mnuchin stated that President Trump would be willing to accept a “skinny” NAFTA, lowering the bar so that congressional approval would not be required. The next unofficial deadline to reach an agreement will be 1 July, the same day as Mexico’s general elections. Markets should expect increased volatility the closer we move to Election Day.