Investing.com – A black Monday for Mexico’s financial markets. Panic filled the minds of investors one day after the election day in which Mexico elected the official candidate Claudia Sheinbaum Pardo as the next president. At the close of the session on June 3, the Mexican Stock Exchange closed with a fall of 6.1%, its largest loss since March 9, 2020, at the beginning of the Covid-19 pandemic.
The results of the presidential election were already discounted, but the surprise was the Legislative Branch because the quick counts practically assume that the ruling coalition, made up of the Morena, Labor Party and Green Party political parties, will achieve a qualified majority in the elections. Chamber of Deputies, and there is the possibility that in the final calculations or through negotiations they will reach it in the Senate.
“Even if Morena fails to achieve a two-thirds majority in the Senate, opposition parties could tilt and favor Morena on issues that could have a significant impact on the business environment. The most radical factions of the party could exert considerable influence to push their agenda, such as reforms to the judiciary, the National Electoral Institute and the pension system,” said strategists at investment bank UBS (SIX:).
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For the purpose of comparison, on the day after the 2018 presidential election, in which President Andrés Manuel López Obrador won and which also generated negative sentiment among investors, the drop in the CPI was 2.12%. At that time, the coalition led by Morena did not achieve a qualified majority through the votes, but it later achieved it in alliance with the Green Party.
“This overwhelming victory for Morena will likely be viewed negatively by the market, as it raises important questions around the country’s system of checks and balances,” they added in a report.
With these movements, the IPC fell to 51,807 units. Within the index, it is possible to see that the banking sector led the losses, where Regional (BMV:) and Gentera (BMV:) registered falls of more than 13%; Cluster Banorte Financial (BMV:) plummeted 11.3% and Banco del Bajío (BMV:) lost more than 10%.
It should be remembered that the British newspaper Financial Times reported last month that the Sheinbaum administration could restrict tax deductions to Mexican banks and even apply an additional tax on profits to increase tax collection.
A measure of this type would require a change to the Law, which could occur without major complications if the qualified majority in both Chambers of the ruling Morena party and its allies is confirmed.
“The dominance of the alliance in the Upper and Lower Houses generated concerns in the markets over the possibility that constitutional changes could be enacted in the next administration,” mentioned Janneth Quiroz Zamora, director of Economic, Exchange and Stock Market Analysis at Grupo Financiero Monex. .
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Gabriela Siller Pagaza, director of Economic and Financial Analysis at Grupo Financiero Base, added that investors’ “fear” revolves around that there may be setbacks in the autonomy of the Bank of Mexico, the fiscal discipline of the next administration, as well as the deterioration of the division of powers and autonomous bodies.
He also suffered a post-election disaster and at the close of the American session, nervousness dealt a blow against the local currency, taking the exchange rate to 17.69 pesos per dollar, which means a depreciation of 4.25%, being the strongest loss recorded since March 16, 2020, at the beginning of the Covid-19 pandemic.
“The depreciation is due to the result of the elections in Mexico, where the presidency and the majority in Congress were in the hands of a party and its allies, which gives them the possibility of making changes to the Constitution. Along with the fall in the exchange rate, there is a drop in the CPI of the BMV and a rise in the rate of government bonds, evidence of possible capital outflows from the country,” he explained.
The specialist pointed out that if the exchange rate consolidates above 17.55 pesos per dollar consistently, the parity could move towards the 2024 maximum of 18.2137 pesos per dollar, not seen since April 19. For now, the “Superweight” has already erased the profits of 2024 and, so far this year, it is already observing a loss of 4.3%.
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