Mexico is in a higher category of political risk

Written by Kim Catechis, Head of Global Emerging Markets at Martin Currie (a Legg Mason affiliate)

Kimkatechis
Kim Catechis

Mexico is in a higher category of political risk after the AMLO victory, because this result represents an unprecedented change in the way that economic and social policy has been managed over the past three decades.

While economic constraints will probably push López Obrador toward moderation, his policy orientation and ideology, especially in areas such as energy, would differ significantly from the approach of recent administrations.

This means a prolonged period of unpleasant uncertainty for the capital markets. Prolonged because the new President does not assume power until December and because afterwards, there is likely to be a longer than usual period of embedding the new cabinet and enact its new policies, given that Morena has never governed before. For investors, the key is to monitor the new administration’s economic, fiscal, trade and industrial policies and the degree to which these remain orthodox.

Just like Lula’s first mandate in Brazil, AMLO will probably focus on winning the support of investors in the first year of government, in order to focus on delivery of most of his platform for the following 4-5 years.

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