Jun
In a historic election this Sunday, Mexico will elect its first female president, with two women, Claudia Sheinbaum and Xóchitl Gálvez, contending for the top spot. This landmark event could significantly boost investor interest in a country well-positioned to benefit from the ongoing U.S.-China rivalry.
Strong Market Performance Despite Recent Pullback
The iShares Mexico exchange-traded fund has delivered an average return of 13% over the past three years. This performance ranks it among the top performers in emerging markets. However, rising U.S. interest rates and election uncertainties in both Mexico and the U.S. have caused a 4% pullback so far this year.
Sheinbaum Expected to Continue AMLO’s Policies
Fund managers anticipate more opportunities ahead as Claudia Sheinbaum is widely expected to defeat conservative candidate Xóchitl Gálvez. Sheinbaum, a protégé of outgoing President Andres Manuel Lopez Obrador (AMLO) and former mayor of Mexico City, has garnered significant support. This historic matchup marks the first time two women have vied for the presidency in Mexico.
According to Barron’s report, Sheinbaum is expected to continue many of AMLO’s policies, which reassures investors. Mexico has become a key destination for companies seeking to diversify supply chains amid efforts to reduce reliance on China. Companies like Tesla, General Motors, and Apple supplier Foxconn are leading this trend.
Ideal Outcome for Markets
A decisive victory for Sheinbaum, with a margin wide enough to prevent a contested election but not so vast that it eliminates checks and balances, would be ideal for the stock market. A win by eight to 15 percentage points would hit the sweet spot, according to Varun Lajawalla. Lajawalla is the co-manager of Ninety-One’s $9 billion emerging markets equity strategy.
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Opportunities in Consumer-Oriented Stocks
Sheinbaum is likely to maintain AMLO’s social programs, creating a favorable environment for consumer-oriented stocks, notes Kimberley Sperrfechter, an emerging markets economist at Capital Economics. AMLO’s spending on youth education, training, and universal pensions has increased the deficit to 5% of GDP from 3.5%. This poses challenges for the next president, who will need to balance spending or raise taxes.
Risks and Opportunities in the Short Term
In the short term, market risks include a loss for Sheinbaum or a narrow victory leading to a contested election. However, Laura Geritz, founder of Rondure Global, says that past market downturns due to domestic politics have been short-lived. She favors consumer-oriented stocks such as Coca-Cola Femsa and tequila maker Becle S.A.B. de C.V., which derives 80% of its sales from the U.S., Mexico, and Canada.
Bullish Outlook for Mexican Stocks
J.P. Morgan strategist Adrian Huerta expects the Mexican stock market to rise towards a bull-case target of 63,000, a more than 10% increase. This optimism stems from the likely election outcome, continued U.S. economic strength, and the trend toward nearshoring.
Laja Walla sees current pullbacks as buying opportunities in companies well-positioned for shifting trade flows. For instance, Fibra Uno Administration, which focuses on industrial real estate in northern Mexico, is benefiting from re-shoring activities and is currently trading at a 50% discount to its net asset value.
Potential U.S. Election Spoiler
The U.S. election could be a potential spoiler. As campaigns intensify, fund managers anticipate more heated rhetoric on tariffs and immigration and discussions about revisiting the U.S.-Mexico-Canada trade agreement, up for review in July 2026. Increased Chinese investment in Mexico could raise concerns about circumventing trade restrictions on China.
Relations with Mexico were strained during Trump’s first term, raising questions about another term’s impact. However, efforts to reduce reliance on China make Mexico a crucial partner. While this may not reduce volatility, it could mitigate economic impacts as companies make long-term investments to adjust supply chains. This scenario presents a promising setup for long-term investors seeking bargains.
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