Mexico: Risks of an Obrador presidency have been overblown

It is widely feared that an Obrador victory will result in key reforms being undone and a much more hardline stance being taken on NAFTA noted Angelo Katsoras, analysts at National Bank of Canada. According to them, despite the widespread nervousness generated by his candidacy among investors, the risks associated with an Obrador presidency have been widely overstated.

Key Quotes:

“We feel that the risks of an Obrador presidency have been overblown. Our view is supported by his moderate record as mayor of Mexico City and the recent softening of his positions on NAFTA and the oil sector. Further, his party’s very likely minority status in Congress would act as an additional check on his power.”

“As for NAFTA, if a deal was passed by the Mexican congress before the election, we do not feel that an Obrador presidency would be willing or able to reverse it (would require the approval of both chambers of Congress). If NAFTA negotiations continued after the election, we do not feel talks would be any more difficult or easy under a government led by Obrador."

“It is also important to note than any attempt to implement extreme measures such as the nationalization of certain companies and/or the rollback of reforms would immediately trigger a flight of capital, a depreciation of the peso, and a hike in interest rates. This would significantly hurt the economy and leave Obrador with much less fiscal resources to implement major parts of his agenda (i.e., improving the social safety net).”

“Beyond the election, investors should closely monitor how successful Mexico is in dealing with cartel violence when analyzing Mexico’s economic prospects and the cost of doing business across several sectors.”

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