Hear
MEXICO CITY.- The Mexican peso and the stock market were on track to record their worst session since the pandemic after Claudia Sheinbaum won a landslide victory in the presidential election and his Morena party and allies were poised to dominate Congress, which the markets fear will bring profound reforms to the Constitution.
The domestic currency was quoted at 17.60 pesos per dollar, with a depreciation of 3.5% against Friday’s reference price, pointing to its biggest daily loss since June 2020, when the ravages of the coronavirus had investors trembling. The stock index fell around 6%, a drop that has not been seen since then.
The victory on Sunday by the ruling Morena and its allies was so large that the markets fell due to concerns that the ruling party would achieve a qualified majority in Congress – as preliminary results suggest – which would allow them to approve controversial constitutional reforms without the need for negotiate with the opposition.
“The question is whether the Morena party has done so well as to have a supermajority and try to apply non-market-friendly constitutional reform policies”said Chris Turner, global head of markets at ING.
In the midst of nervousness, The stock market sank 5.06% to 52,385.96 points, its worst fall since March 2020weighed down by a collapse in the shares of some of the main financial groups due to press reports that the incoming Government would be analyzing fiscal changes to the sector.
The securities of the Regional bank, known as Banregio, Banco del Bajío and Grupo Financiero Banorte fell more than 11%.
“We will have to see how everything evolves, but the market is not liking it“said Marco Oviedo, senior strategist for Latin America at XP Investments bank.
“It was precisely one of the scenarios that investors do not like,” said Jacobo Rodríguez, financial specialist at the analysis firm Roga Capital.
“Now they have an open letter, Morena and Sheinbaum, to propose important constitutional changes, even the president himself has mentioned that before leaving he can propose a couple of important reforms, that makes the markets nervous,” he added.
Rodríguez maintained that the market expects that Sheinbaum gives a speech to calm the waters.
Sheinbaum won the elections with between 58.3% and 60.7% of the votes, according to a quick sample count carried out by the electoral referee, becoming the first female president of the Latin American country.
His victory had been widely anticipated by the markets, but the magnitude of support in Congress that a coalition led by his party was set to obtain took many investors by surprise.
In her first speech after Sunday’s victory, the physicist who was part of a panel of UN climate scientists that received the Nobel Peace Prize in 2007, thanked López Obrador, calling him “an exceptional, unique man who has transformed Mexico for the better.”
In his nearly six years as ruler of Latin America’s second-largest economy, López Obrador, known as AMLO, doubled the minimum wage and reduced poverty and unemployment, successes that made him popular and helped Sheinbaum to victory.
Despite his broad victory, analysts believe that Sheinbaum will find it difficult to follow in AMLO’s footstepswho on Monday emphasized several times, in his daily conference, that he will not intervene at all in the new government and that he will retire from politics when his term ends in four months.
She has promised to continue López Obrador’s legacy, although with slight adjustments to mitigate violence linked to organized crime, reduce public debt, stimulate the economy, promote renewable energy and tackle corruption.
In February, AMLO had proposed a series of constitutional changes, including to the pension system, and to the election of judges and advisors of the electoral authority, in addition to the elimination of autonomous bodies, something seen by investors as detrimental to the business climate.
On Monday, The president said he would speak with Sheinbaum about the possibility of promoting some reforms in September, a short period in which he will remain president even as new legislators join Congress. Sheinbaum will take office on October 1 for a six-year term.
“We have to agree to see these initiatives with Claudia and other things that we have to see together,” said AMLO. “I don’t want to impose anything,” he added.
“Should Sheinbaum’s Morena party and its allies secure a two-thirds majority in the lower house of congress and a majority in the upper house (…) then the divisive agenda of constitutional reforms, laid out by López Obrador in February 2024 comes to light and creates a downside risk for Mexico’s asset prices – because they risk triggering large-scale protests and, if implemented, risk undermining the strength of institutions ”explained Hasnain Malik, Strategist and Head of Equity Research, Tellimer.
“What would we expect? Let the president-elect come out and give some speeches to reassure the marketthat would help calm nervousness,” said Jacobo Rodríguez, financial specialist at the analysis firm Roga Capital.
Reuters and AP Agencies
THE NATION
