Investors are rushing to buy dollars and cash out their stocks from Mexico’s stock exchange due to uncertainty surrounding Andrés Manuel López Obrador ’s future actions as president.
The U.S. dollar was valued at 20.95 pesos in CitiBanamex at the beginning of the week and ended the day at MXN$20.90 , its highest level since June 15 last. However, BBVA Bancomer closed the day selling dollars at 21 pesos , which represented an increase of 38 cents since last Wednesday .
According to the news agency Reuters , the Mexican peso dropped 1.1% in value yesterday, ending in 20.62 units per dollar in the international trade , where most operations involving the Mexican currency occur.
Financial analysts have suggested that the depreciation was caused by the threats of U.S. President Donald Trump to close the border with Mexico to prevent the Central American migrant caravan from crossing illegally to U.S. territory .
They also pointed to the initiative presented by the Labor Party (PT) to eliminate the Retirement Funds Administrators (AFORE) so that the Mexican government handled the administration of retirement funds for workers, as well as Morena’s proposal to cancel mining concessions for companies that did not abide to legal standards.
Another plausible cause was a speech López Obrador gave against neo-liberalism before Mexico’s Armed Forces last weekend .
In contrast with stock earnings in the United States and Europe , the Mexican Stock Exchange (BMV) dropped 4.2%, closing with under 40 thousand points for the first time since March 2014 .
Banorte lost the most in the day, showing a drop of 13% in their stocks last Monday , which equals a 36 billion pesos loss in stock exchange capitalization , ending the day with a value of 241 billion pesos.
The general director of Bursamétrica, Ernesto O’Farril , estimated that financial volatility would continue until the 2019 government budget was presented at the latest on December 15.
He denied that there was a flight of capital in Mexico; instead, he claimed that the stock market had simply shown a decrease in portfolio foreign investment, also called fly-by-night capital , due to uncertainty surrounding the future actions of López Obrador’s administration.
Gerardo Copca, a financial analyst from MetAnálisis
, agrees that there was no flight of capital. On the other hand, Mexican investors seem to be rearranging their portfolios with less risky assets, such as Cetes and short-term bonds.
“Investors seem to be very scared of what López Obrador may choose to do, and they are currently trying to sell their stocks.”
From their perspective, the stocks of companies listed on the BMV are quite undervaluated, since their price does not correspond with the companies’ financial situation.
The analyst from the Ve por Más Financial Group , Rodrigo Heredia , commented that the sudden drop in the Mexican Stock Exchange was also due to the fact that only seven companies represent 62% of the market value in the Pricing and Trading Index .
The yield for government bonds (also called “M” bonds), increased to its highest level in nearly a decade, with ten-year yields and a return rate of 9.24% in the secondary market.
A message of trust
Facing the so-called “Black Monday” in the domestic financial markets, Andrés Manuel López Obrador’s financial team decided to give a message of certainty and trust .
“The Mexican economy is strong and well positioned, financially speaking. Stocks are always going up and down; the fact that the news might be a bit traumatic to some has little to do with an economy’s health,” said the incoming head of the Ministry of Finance and Public Credit (SHCP), Carlos Urzúa .
He reiterated the incoming government’s commitment with fiscal discipline, claiming that the level of external debt to GDP ratio in 2019 would be similar to that of 2018, closing at 45.3%.
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