Mexico: not in crisis but hold the tequila
This piece is part of a two-part series on Mexico. The second part, a case study of a buying opportunity we found in the market, will be available next week.
Following his outlandish campaign-trail declarations, the popular consensus is that the election of US President Donald Trump will be bad for Mexico. Indeed, with the country facing its own potentially challenging elections, the outlook for the Mexican economy should be decidedly negative. However, the risks presented by these scenarios appear to have been overplayed, with subsequent sell-offs creating attractive opportunities in the market.
Mexico’s economy: better than you think
Since the 1980s, Mexico’s economy has been characterised by periods of crisis and recovery. The 1980s, described as ‘the lost decade’ as falling oil prices increased national indebtedness, were succeeded by growth in the early 1990s as the North American Free Trade Agreement (NAFTA) took root. These gains were wiped out by the collapse of the peso in the ‘Tequila crisis’ before strong exports drove a recovery in the late 1990s. Then a US downturn brought recession back in 2001. Mexico was hit again by the 2008 crisis, before the proposed reforms of President Enrique Peña Nieto paved the way for the return of growth, although the recent collapse in the oil price has stymied some of these reforms. More recently, President Trump’s protectionist rhetoric – which includes ripping up NAFTA, implementing a border tax, forcing Mexico to pay for a new wall on their shared border and sending back 11m illegal immigrants – has triggered a sharp sell-off in Mexican assets and a 19% depreciation in the peso to a record low of 21.8 pesos to the dollar.