Mexican Stocks and Peso Slide After Ruling Party's Landslide Election Victory -- WSJ

By Anna Hirtenstein

Mexico's currency weakened and stocks slid after the ruling party's Claudia Sheinbaum won the presidency by a landslide, raising concerns about reduced checks and balances on the government.

-- The peso dropped about 3% against the dollar to its weakest level since November. One dollar recently bought 17.54 pesos.

-- A benchmark index of Mexican stocks, the S&P/BMV IPC, slid 3.8%.

-- The iShares MSCI Mexico Exchange-Traded Fund fell 7.4%.

-- Yields on Mexican government bonds rose. Yields on dollar bonds issued by Pemex, Mexico's national oil company, edged down.

"A reason for the weaker peso is that there's basically no strong opposition, this has been an issue on investors' minds recently," said Simon Quijano-Evans, chief economist at Gemcorp Capital Management. "You always want to have some counter balance in a democratic system."

Sheinbaum's party, the leftist Morena, appeared headed for a congressional super-majority. That would let it make constitutional changes without opposition support, potentially allowing the passage of unfinished key projects of outgoing President Andrés Manuel López Obrador. Still, Sheinbaum struck a conciliatory note in her victory speech.

The peso has strengthened in recent years, buoyed by an influx of companies setting up to serve the U.S market. The central bank has also kept interest rates high, supporting the currency.

Emerging-market traders often buy the peso to bet that other currencies will depreciate, according to Kit Juckes, a foreign-exchange strategist at Société Générale.

The price action may be exacerbated by an unwind of these trades, he said. "The fundamental positive story about Mexico hasn't really changed."

Leveraged funds amassed the biggest net long position in the peso in April in over a year, with positioning continuing to hover close to those peaks at the end of last week, data from the Commodity Futures Trading Commission showed.

In other global election news, India's benchmark stock index hit a record high after exit polls there pointed to a strong victory for incumbent Narendra Modi.

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June 03, 2024 11:22 ET (15:22 GMT)

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