Daily Archives: November 24, 2016

Mexico, Trump won the election

Mexico is an example of a developing country that evolved into an industrial nation amongst the 15 largest in the world in a short period. This is the same country that suffered the bond crisis in the 1980s and that signed the NAFTA with a great positive effect for its economic development. This development has also effects in their financial markets, that boomed with a modernisation after the liberalisation of the sector and the investment of foreign entities.

The line was very positive in the global trend, as it registered a bullish bias the main part of the year. However, there was a break… after the second Tuesday in November. Donald Trump won the election and the promises of tightening the relationship with the southern neighbour shocked the Latam markets and, specially, the Mexican one. The line is clear in the T-Advisor trend evolution chart:

Global Trend Evolution chart of Mexico in T-Advisor

The IPC, the Mexican benchmark, scaled a 30% in the last five years, but this positive trend changed dramatically at the beginning of the month.  If we look at the chart, the drop is clear and the change in all technical analysis references is relevant.

IPC YTD evolution in T-Advisor

Compared with other Latam stock exchanges, Mexico didn’t recover from the Trump shock:

Comparison Latam markets in T-Advisor

The question is: what is going to happen after this shock? Trump has relaxed somehow his strong comments about the relationship with Mexico, but nobody knows his real intentions when he takes office in January. Will he order the building of the wall in the Mexican border? Will he abandon the NAFTA? Will he control the Mexican immigration? All these decisions would have strong negative effects in the economy of Mexico and they would also shock the financial markets. Our bootstrapping tool reveals that there are 25% possibilities of a negative return of the IPC in the next two years. However, there are 40% probability of positive returns between 2% and 45%.

Mexico IPC bootstrapping in T-Advisor

This analysis is based on the historical evolution and considers that past performances do not guarantee future returns. In any case, these results can also be altered by sudden political decisions. Many analysts consider that 2017 will be a volatile year linked to political instability. We will soon discover how it will affect to Mexico.