Claudia Sheinbaum has made history by becoming Mexico’s first female president in the recent presidential election, leading her Morena party to a landslide victory. However, the unexpected scale of Morena’s gains and the formation of a super-majority coalition have caused concern among investors, who fear that the ruling coalition may push through constitutional reforms without opposition support. This fear led to a sharp decline in Mexican stocks and the peso, with the iShares MSCI Mexico ETF closing 10.7% lower and the peso dropping more than 4% against the U.S. dollar.
The proposals put forth by former President Andrés Manuel López Obrador, which Sheinbaum is expected to prioritize, include judicial and electoral reforms, pension and social welfare reforms, and economic and environmental reforms. These proposals aim to transform the electoral system, guarantee 100% pensions for workers, elevate social programs to constitutional rank, and implement environmental measures such as banning fracking and open-pit mining. Investors are concerned that these reforms could disrupt the business environment and impact foreign investment in Mexico.
Investors are seeking reassurances from Sheinbaum’s administration about maintaining a stable and predictable business environment in Mexico. The country has benefited from nearshoring opportunities since the Covid-19 pandemic, making it attractive for U.S. companies looking to relocate their supply chains closer to home. Any policies that disrupt this trend could affect foreign investment and impact the currency and domestic economy. The energy sector is also on alert for protectionist policies that favor state-owned enterprises over private and foreign investments.
The super-majority victory for Claudia Sheinbaum presents both opportunities and challenges for foreign investors. While the market reaction has been negative due to fears of significant reforms and increased state control over critical sectors, it is important to note that the reality of the situation may differ from investor anxiety. Clear and consistent policy communication from Sheinbaum’s administration will be crucial in the coming days and weeks to reassure investors and encourage them to re-enter Mexican assets. Time will tell how Sheinbaum’s presidency will unfold and how it will impact the Mexican economy and foreign investment.
