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Emerging Markets

Profit from the Selloff South of the Border

By Elliott H. Gue, on Dec. 17, 2016

Mexico’s stock market emerged as one of the biggest losers from Donald Trump’s campaign rhetoric and victory in the US presidential election, with the MSCI Mexico Index giving up 18.7 percent of its value from peak to trough and still down 12 percent. The peso also plummeted in the wake of the election, tumbling 14 percent from its high.

This selloff in Mexican equities and the peso reflects uncertainty about the US president-elect’s trade policies and their implications for economic growth south of the border. At the same time, Mexican equities could also face headwinds in 2017 from uncertainty in the run-up to its own presidential election in June 2018. The combination of fiscal and monetary tightening likewise will weigh on stocks.

However, the Trump-driven selloff in Mexican equities and the potential for further weakness gives patient investors with a longer time horizon an opportunity to ease into positions in higher-quality names that offer exposure to near- and intermediate-term upside drivers.

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