Mexico, Latin America’s second-largest economy behind Brazil, recently held national elections with controversial leftist candidate Andrés Manuel López Obrador (AMLO) emerging as the country’s next president.
The iShares MSCI Mexico Capped ETF (NYSEArca: EWW), the largest exchange traded fund dedicated to Mexican equities, tumbled immediately following the election results but has since bounced back. Over the past week, EWW is up more than 5%.
“AMLO’s victory represents a blow to a political establishment tainted by corruption charges, rising crime and persistent inequality, and suggests the forces of populism have not yet peaked around the world,” said BlackRock in a recent note.
While AMLO quickly gained popularity on his pledge that “the country will be cleansed” of corruption, market watchers dumped Mexican equities on fears that the new president’s policies could cripple the economy. AMLO said on the campaign trail hat he would roll back privatization in the country’s oil industry and double pensions for the elderly.
Issues To Contend With
AMLO’s victory comes as Mexico negotiates with Canada and the U.S. on a new trade deal. President Donald Trump has censured the current deal, NAFTA, calling it the worst ever. Tensions intensified this week after the Trump administration said it will implement steel and aluminum tariffs on imports from Canada and Mexico. The two countries also responded with threats of retaliatory tariffs, fueling speculation of a trade war in North America.
“In the medium term, we see much hinging on how AMLO will govern. Will he resort to the populist and confrontational stance taken at the start of the election campaign or revert to the more moderate and pragmatic style he displayed as mayor of Mexico City in the early 2000s?,” said BlackRock.