The recent victory of Claudia Sheinbaum’s Morena party in Mexico’s presidential election had a significant impact on the country’s financial markets. The peso tumbled by as much as 4.1% against the dollar, leading to concerns among investors and analysts. The ruling party’s unexpectedly strong showing raised fears of constitutional changes that could potentially weaken checks and balances.
The Mexican peso hit a fresh seven-week low of 17.7207 against the dollar, marking a considerable drop of over 4.1%. This sharp decline added to the currency’s overall weakness, with losses of more than 3% since the beginning of the year. The market was taken by surprise by the magnitude of the ruling party’s gains, which raised questions about the potential for non-market-friendly policies.
In addition to the currency depreciation, the local stock market also took a hit after the election results. The benchmark index fell by 2.3% in early trading, while the MSCI index, priced in dollars, dropped by 4.7%. The iShares MSCI Mexico ETF experienced a significant decline of 5.7%, reflecting the concerns of investors about the political landscape.
Analysts and market participants expressed apprehension about the possibility of Morena securing a super-majority, which could enable the party to push through constitutional reforms without opposition support. The proposed reforms, including changes to the judiciary, electoral law, pensions, and environmental regulations, raised red flags among investors who fear adverse effects on the business environment.
As the newly elected president, Claudia Sheinbaum faces the challenge of expanding welfare policies while dealing with a significant budget deficit and low economic growth. Despite her party’s victory, Sheinbaum emphasized the importance of maintaining an autonomous central bank, preserving the division between economic and political powers, and adhering to legal and fiscal discipline.
The conciliatory tone of Sheinbaum’s acceptance speech and President Lopez Obrador’s assurance that the finance minister would remain in his position for a transition period aimed to calm market jitters. The uncertainty surrounding the new government’s policies and the potential impact on the economy have kept investors on edge, awaiting further clarity on the direction Mexico will take under Morena’s leadership.