Quantfury Gazette

Mexico’s first female President-elect tries to reassure markets after landslide victory, but it’s off to a rocky start

Nathan Crooks
Quantfury Team

Mexican President-elect Claudia Sheinbaum, set to become the country’s first female leader after a landslide victory over the weekend with around 60% of the vote, moved quickly to try and ease financial market fears that the fresh mandate will allow her to further consolidate and deepen the legacy of her longtime mentor and current leftist president famous for his clashes with the country’s business community, Andrés Manuel López Obrador. It’s getting off to a rocky start.

The former mayor of Mexico City isn’t due to begin her six-year term until October, but traders are already trying to figure out where the country goes now. While Sheinbaum has been a loyal lieutenant to her outspoken predecessor known for his polarizing style, she’ll undoubtedly bring a very different tone to the office. The trillion dollar question for the world’s 12th largest economy is just how that might move the needle on a number of hot button issues from trade and spending to undocumented migration, crime and corruption. There will be broad ramifications for the US, and a Latin America where ideological lines are increasingly contentious.  

In a midnight victory speech, the energy scientist and expert on sustainable development did her best to strike a calm and thoughtful posture, promising to respect political dissent, guarantee a free press and protect private investment. The comments came amid opposition fears that the massive win and possible super majority in Congress would allow her government—and the ruling party founded by López Obrador—to further entrench itself by changing the constitution, consolidating power over the courts, and returning the country to one-party rule. 

“We see a plural Mexico, diverse and democratic…we will never create an authoritarian or repressive government,” she said, also promising that the central bank would remain autonomous. “We will promote and facilitate, with honesty, the private national and foreign investment that promotes social well being and development.”

Markets rejected those reassurances as quickly as they were offered. The peso immediately fell 4% against the US dollar, hitting its lowest level in six months, while shares of large Mexican corporations including America Movil (NYSE: AMX) and Wal-Mart de Mexico (BOLSA MEXICANA: WALMEX) plummeted. The iShares MSCI Mexico ETF (NYSE: EWW) declined more than 10% on Monday. 

Sheinbaum, who speaks English and studied in California, said relations with the US would be friendly. She promised financial and fiscal discipline, but pledged to maintain expansive social spending, infrastructure development and expensive energy subsidies. That can be a tough balance to achieve, and there’s also the herculean task of dealing with rising political violence fueled by the country’s long running battle with drug cartels.

“The challenge is to follow Lopez Obrador, manage an extremely challenging security situation, ensure macroeconomic fundamentals remain sound and potentially deal with Trump,” Eurasia Group analyst Daniel Kerner said. “And if she tries to do the constitutional reforms, economic and social stability will suffer.”

For now, the markets expect volatility, and Sheinbaum’s words and actions over the coming days and months will be scrutinized like tea leaves. Over the long run, Mexico will likely continue to benefit from strong economic tailwinds as the US works to shift supply chains closer to home, and the jitters could bring opportunity for investors with nerves able to handle all the uncertainty.

A fast approaching litmus test Sheinbaum will soon face is the upcoming electoral period in Venezuela, where the leading opposition candidate was barred from running to try and unseat Nicolas Maduro and become that country’s first female president. It’s fair to assume that Mexico’s new leader will at some point be pressed to react to whatever happens as that process unfolds, and her words and actions will signal much about the governing style to come. People will usually show you exactly who they are. 


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