NEW YORK (Reuters) – Mexican assets are likely to be strengthened, although left-back Andres Manuel Lopez Obrador wins the presidential election on Sunday, analysts said. He assumes that he will govern from the center and ease the uncertainty from the race.
Lopez Obrador, a former city in Mexico English The lieutenant colonel has a lead of 20 points over his rival after the previous polls before the July 1 vote. He is the first leftist Mexican president since the 1930s.
However, strategists at Miami-based Bulltick Capital are among those who believe that once in office, Lopez Obrador will pursue a centrist policy.
When the peso rose above $ 20, "we went long Mexican assets, both equities and fixed income, and maintained these bullish positions, which we believe will be positive as the investor community draws similar conclusions regarding AMLO After his victory, "said Bulltick in a statement to customers, citing the acronym for Lopez Obrador.
The peso has lost 16 percent against the US dollar over the past 12 months, in part due to investors' concerns about a presidency of Lopez Obrador and increasing trade tensions between Washington and Mexico City.
The currency rose about 6 percent from the low of 201.8 from 20.88 to the dollar it had reached earlier this month.
Mexico remains one of the emerging economies that are least prone to currency pressure due to their low reliance on offshore capital inflows, Moody's rating agency said in a report this week.
Fitch Ratings said that key credit risks for companies in Mexico are related to currency weakness and domestic policy uncertainty, but the rating agency added that there are buffers.
"Broad geographic diversification of operations and strong capital structures are likely to reduce the credit risk of most rated issuers, which will only result in minor rating changes over the next 12 months," said Fitch Senior Director Alberto Moreno.
Mexican debt has traded in a relatively narrow range against US benchmarks. Benchmark JPMorgan Emerging Markets Benchmark Index Plus (EMBI +) was 209 basis points above US Treasuries on Friday, not far off the 189-basis-point average last year.
At the beginning of last month, the annual average was its lowest level since 2015.
Mexico's benchmark IPC stock index is well on its way to achieving its largest monthly increase in over three years, but is still close to 4 Percent of MSCI Mexico ETF traded in the US
Option data suggests that traders on the peso and in the US listed iShares MSCI Mexico Capped ETF are moderately defensive.
Lopez Obrador's early and sustained leadership in the polls is not the only reason why Mexican assets have been under pressure.
The unexpected strength of the US dollar, helped by rising US interest rates, has undercut emerging market currencies. Investors in Mexico continue to come under pressure as a result of fierce negotiations to modernize the North American Free Trade Agreement (FTA), continued oil production, drug-related violence and corruption.
Lopez Obrador, who heads the Morena party, has pledged to cleanse the government and combat violence, but there are continuing concerns that he will top up spending on social programs and the changes that are opening up the Mexican oil and gas industry have, could push back private and foreign investors.
Some members of Lopez Obrador's team have stressed that he will rule not as a radical leftist but as a left-center leader, who will fight for, among other things, the maintenance of the NAFTA agreement with the United States and Canada.
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Citi analysts said they expected a sustained rally in the peso as the hedge unlocks, as they did in previous elections, "although concerns over the management of AMLO and NAFTA should return in the medium term."  Wall Street Bank's baseline scenario calls for a "loose victory" for Lopez Obrador and his party, which becomes the largest party in both chambers of Congress, with the possibility of a majority vote.
In a strategy note, Commerzbank said that the extent of Morena's dominance in Congress is now the bigger question.
"If the president is no longer restricted by an opposition-dominated Senate, the nervousness about excessive spending by the new government on the financial markets could rise," wrote the Commerzbank analyst Alexandra Bechtel.
"It remains to be seen how Lopez Obrador's plans will actually be implemented – electoral rhetoric is often populist, while its implementation is often more pragmatic."
Some investors are also betting that Mexican consumers will help Walmart de Mexico will be strong. The share has risen by 9 percent so far this year.
"The average consumer will still buy from Walmart," said Rishikesh Patel, London portfolio manager of the BMO LGM Emerging Markets Fund.
Patel said worries about the direction of economic policy may even increase the retailer's inventories because "if you're less optimistic, you're looking for places that will give you more value for your money."
Report by Rodrigo Campos; Cut by Daniel Bases and Paul Simao