Mexico’s newly elected and first president, Claudia Sheinbaum, faced a market crash hours after being elected as stocks and the value of the peso fell.
Stocks fell nearly 6 percent and the peso lost as much as 4 percent in the hours after Sheinbaum won a landslide victory in Sunday’s presidential election.
The magnitude of the gains by the Morena party and its allies took markets by surprise, with some fearing the results would pave the way for the ruling coalition to approve constitutional reforms without opposition support.
The Mexican peso earlier hit a new seven-week low of 17.7207 per dollar, a drop of more than 4.1 percent, LSEG data showed. At 1:30 p.m. EDT, the peso was trading at 17.64 per dollar, a drop of 3.7 percent.
“The question is whether the Morena party has done well enough to have a supermajority and try to implement non-market-friendly constitutional reform policies,” said Chris Turner, global head of markets at ING.
The newly elected and first president of Mexico, Claudia Sheinbaum, faced a market collapse hours after being elected.
The Mexican peso hit a seven-week low of 17.7207 per dollar, a drop of more than 4.1 percent, on Monday after his election.
The latest losses mean the peso has weakened more than 3 percent since the start of 2024, a sharp turnaround for the currency, which until recently was one of the few in emerging markets to have gained ground against a strong dollar this anus.
Mexico’s benchmark stock index fell 5.9 percent, while the MSCI index, quoted in dollars, fell 10 percent. The iShares MSCI Mexico ETF fell 9.4 percent.
“The main challenge for President-elect Claudia Sheinbaum will be to reinforce market confidence and provide a predictable and investment-friendly regulatory framework,” Alberto Ramos, head of Latin American economic research at Goldman Sachs, said in a note to clients. .
“Ultimately, the new administration will be challenged not to encroach on private sector activity and free markets, and to avoid further erosion of institutional quality.”
The Morena party that López Obrador founded and in which he remains much more personally popular than Sheinbaum, appeared to be on track to win the two-thirds majority needed to change the Constitution.
López Obrador has already laid out 20 constitutional changes he plans to introduce, including the elimination of independent oversight agencies and stricter limits on private investment, worrying foreign investors.
López Obrador has already cracked down on private and foreign investment in the energy sector, and now wants to ban new industrial sites in any area of Mexico suffering from water stress, essentially the entire economically vibrant north of the country.
But other political provisions also worry and divide Mexicans.
The magnitude of the advances of the Morena party and its allies took the markets by surprise. Crowds of flag-waving supporters celebrated Sheinbaum’s victory (pictured)
Foreign investors are concerned that outgoing President Andrés Manuel López Obrador will approve constitutional changes that impose stricter limits on private investment.
“The climate of political polarization has worsened under the current administration,” Moody’s Analytics director Alfredo Coutiño wrote in a report Monday.
“The country is significantly divided and will require political leadership from the new president to restore national unity.”
President Joe Biden congratulated Mexico’s new leftist president, as he anticipates a new chapter in US-Mexico relations where the border crisis is sure to cause friction.
“I just spoke with Claudia Sheinbaum to congratulate her on her historic election as the first female president of Mexico,” Biden said on X.
“I look forward to working with the president-elect in a spirit of partnership and friendship, promoting the values and interests of both nations for the benefit of our people.”
Biden is set to sign a new executive order on Tuesday that will ban immigrants who cross the border illegally from seeking asylum, The Wall Street Journal reported.
Sheinbaum, a scientist by training, obtained between 58 and 60 percent of the votes, according to the official preliminary results of the National Electoral Institute.
He has promised to continue all of López Obrador’s populist policies, including a universal pension for the elderly and a program that pays young people as apprentices.
Persistently high levels of violence in Mexico will be one of his most immediate challenges after he takes office on October 1.
During the election campaign, he said little more than expanding the quasi-military National Guard created by López Obrador and continuing his strategy of addressing the social ills that make so many young Mexicans easy targets for cartel recruitment.
“Let’s be clear, this does not mean an iron fist, wars or authoritarianism,” Sheinbaum said of his approach to tackling criminal gangs, during his latest campaign event.
‘We will promote a strategy to address the causes and continue moving towards zero impunity.’
The scientist has also promised to expand social assistance programs, although Mexico has a large deficit this year and slow GDP growth of just the 1.5% expected by the central bank next year.