latamen
 A new president for Mexico: will the real AMLO please stand up?

A new president for Mexico: will the real AMLO please stand up?

04-07-2018 | Emerging markets alert

What direction will the new Mexican president take? As of yet, this is unclear, and we will maintain limited positions in Mexico until we get more clarity.

  • Dimitri Chatzoudis
    Dimitri
    Chatzoudis
    Executive Director, Portfolio Manager

Speed read

  • Landslide victory for left-wing López Obrador
  • Varying statements in the campaign make policy direction unclear
  • For now, we have limited positions in Mexico

In line with the polls, Andrés Manuel López Obrador (AMLO) won the Mexican presidential elections by a landslide. According to the quick count announced by the electoral authority, AMLO captured over 53.0% the votes. His nearest rival, Ricardo Anaya, got only close to 22.5% of the votes. AMLO obtained more votes than his three opponents combined and secured the largest presidential victory in Mexico’s history. AMLO’s party, Morena, and its coalition partners look to have secured a simple majority in Congress. The inauguration of the new president will be on 1 December.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Who is the real AMLO?

In AMLO’s past speeches and initial steps of his campaign, he was very left-leaning and nationalistic in tone. Once the polls strengthened, the tone became more conciliatory versus businesses and markets. The key question remains ‘Who is the real AMLO?’ Will he be a moderate president or will he be of the more populistic and nationalistic kind? During his campaign, AMLO said he would double pensions for the elderly upon taking office on 1 December, as a first step to reduce Mexico's disparate income levels. He also said that he would be fiscally disciplined and that taxes would not be raised. Early in his campaign, Mr López Obrador had often used confrontational language when referring to Mr Trump. In his victory speech, however, he struck a more conciliatory note, saying he would seek "friendly relations".

Given these mixed signals that we have been getting from Mr López Obrador, we will base our investment decisions on the actual policies that he will pursue and not on the statements that he has made in the election campaign. Besides that, the current market environment in emerging markets is such that politicians will not easily get the benefit of the doubt like Brazil got in 2016. The rising risk of a trade war, the Fed raising interest rates and an unpredictable US president have made the market much more risk averse than in 2016.

Four key policy areas to watch

In our view there are four key policy areas that have to be monitored closely:

  1. Fiscal discipline
    Mexico has had responsible fiscal policies in the last decade. As a result, Mexico's total debt to GDP stands at a comfortable 47% and the fiscal deficit is expected to be around 2.4% in 2018. It is expected that the election promises of AMLO (including infrastructure spending) could cost between 2% to 2.5% of GDP a year. At the same time AMLO promised to be fiscally disciplined without increasing taxes. He clearly cannot attain both these goals. More clarity is needed on how these different promises will be balanced.
  2. NAFTA negotiations
    In his past speeches, Mr López Obrador has been very vocal that he wanted to have a much tougher and harder line in the negotiations with the US. More recently he said he would respect the existing team renegotiating NAFTA. A new NAFTA treaty is important for attracting foreign direct investments into Mexico. It will be important to see whether AMLO will be able to get this new deal.
  3. Energy reforms
    The private sector has committed close to USD 200 billion in investments on the back of the recent oil field auctions. It is important that new policies from the new government do not put these investments at risk.
  4. Central Bank independence
    AMLO has said that he would respect the independence of the Central Bank. We need to see that this is followed through, also for decisions that would not be in line with the preferences of the new government.

Small positions

We currently hold small positions in Mexico in our emerging markets equity funds. We believe this is the appropriate stance given the economic and political uncertainty. We are however open to increasing our positions in the future, but this will depend on more clarification on the policy direction that the new president will take.

Subjects related to this article are:

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person.

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)) who are professional investors. By clicking “I Agree” below and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States (within the meaning of Regulation S under the Securities Act) and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States (within the meaning of Regulation S under the Securities Act) and (v) you are a professional non-retail investor.

Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States.

Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction.

We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco Institutional Asset Management B.V. (Robeco). The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use with the general public.
I Disagree