2024 saw Mexico elect a new president, which typically brings hope for transitional change. However, history typically shows the first year to be challenging, which could affect Mexico-focused exchange traded funds (ETFs).
Newly elected Mexican president Claudia Sheinbaum Pardo could see slower economic growth in her first year. It’s not an isolated issue, but a common occurrence with previous administrations.
“It has often been observed that changes in political administration tend to have an impact on the pace of economic activity,” noted global research firm Deloitte, noting that the last five presidential transitions in Mexico have resulted in slower economic growth during the first year. “This is usually characterized by uncertainty regarding private investment and consumption, while there is often a slowdown in public spending for a few months as new leaders take office and integrate their teams into government operations.”
Historical patterns aren’t the only challenges Mexico is facing. Macroeconomic challenges loom, including the potential for tariffs from its neighbor with U.S. president Donald Trump now at the helm.
“Growth prospects are weighed down by three main factors: reduced private consumption resilience, weaker export performance, and declining fixed investment influenced by U.S. political uncertainty and Mexico’s legislative agenda,” noted Pamela Diaz Loubet, Mexico economist at BNP Paribas. “Although nearshoring remains a long-term opportunity, political noise and investor hesitation are delaying expected capital inflows, which were previously seen as drivers of recovery.”
Nearshoring, the practice of relocating business operations to a neighboring country, could continue to prop up Mexico’s economy. Such is the case of the United States. The US which has seen a number of its businesses set up shop in Mexico amid souring relations with China. How potential tariffs affect and possibly counteract nearshoring, however, remains to be seen.
BofA is Bullish
Despite the challenges forthcoming, there are reasons to be bullish on Mexico. Bank of America certainly supports the bullish notion that nearshoring will be able to offset any potential threat of tariffs.
“It will be very difficult for uncertainties, either internal or external effects to alter or modify the opportunities that we see in Mexico,” said Bank of America’s Mexico head, Emilio Romano.
“We believe that the nearshoring or friendshoring phenomenon will not be reversed,” Romano added.
Traders who foresee bullishness ahead for Mexico should look at the Direxion Daily MSCI Mexico Bull 3X Shares (MEXX). MEXX seeks daily investment results equal to 300% of the daily performance of the MSCI Mexico IMI 25/50 Index. The Index is designed to measure the performance of the large-, mid-, and small-capitalization segments of the Mexican equity market. It covers approximately 99% of the free float-adjusted market capitalization in Mexico.
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