It’s definitely not a good day for currency investors who held a position in hopes that the Mexican Peso could still rise.
The outcome of the elections has caused pandemonium in the global markets, particularly for those across south of the border. How much damage was caused?
Time.com stated the following;
Mexico’s peso sank sharply on Thursday in its biggest two-day loss in 22 years as investors worried about how U.S. President-elect Donald Trump’s policies could hit exports from Latin America’s No. 2 economy.
Directionally, the Mexican economy largely depended on trade to sustain and flourish over the course of many decades with its US counterpart. Amid that, Mexicans are densely concerned about what future policies will present itself that will regulate the outcome on trading affairs cross-border.
The weary thing that concerns most Mexican trade businesses is the fact that 80% of the country’s exports went to the United States alone. Moreover, there is an added possibility that Trump increases tariffs on Mexican imports, which would cause additional problems for their economy.
After losing close to 3.5% of its value, the peso is floating around 20.60 per every dollar. With these numbers, the future predictions are mostly leaning towards a gradual decline, with very little hope that any major gains are likely to happen in the course of the next 4 years.
With this regrettable outcome, Carlos Slim, known as one of Mexico’s richest men, has lost 9% of his wealth. Globally, the world’s richest has lost a combined $41 billion, due to the Trump’s unexpected victory in this election. What’s to be expected next?
Throughout the decade, many investors looked into investing with the peso as the alternative, due to its high liquidity, against stocks or for hedging forward in a concept of a proxy. This has most certainly cost caused the collateral damage globally and is responsible for the slump of the currency itself.
While this, the US dollar gained significantly at a 9%, with a total gain of the year to 19% against the peso for this year alone.
Andres Jame, from Barclays PLC New York, who works as a foreign exchange strategist stated ““Polls were pointing to a relatively solid Democratic win.”
The worst is yet to come. It’s anticipated that the Central Bank is inclining towards anther interest rate hike to attract more foreign investors through its debt, in hopes to backstop the currency losses that are currently happening. If this strategic move will work, is something we have yet to find out. If the rate increase gets enforced, it would be the country’s fourth hike this year.
Now comes the tough choice, where do investors go and how do they divest to hedge in times like these?
It may not be so obvious, but the price of Gold has spiked close to a 4% gain in a single day, which hit its highest level since September of this year. Would it be considered an aggressive or bullish move? I doubt it. Investors are discussing countermeasures to make up for the significant loss that they have just witnessed and having to invest in gold or even bonds that have gold as underlying security may be a long-term fix to that overall issue.
As many economists and investment strategists would agree, there is nothing yet to be decisive about when it comes to the serious movement of assets and investments, until that time we can confirm the details of the new policies that will be rolled out by Trump later this year.
With so much uncertainty, it’s best to keep a considerable portfolio of international asset classes, such as foreign debt and currencies in moderate terms such as a 5 to 10-year basis, just in case the markets take a swing and come down hard when it comes to steep declines. Again, that is my professional opinion and is not to be taken as financial advice.
What do you think about the future of Mexico’s economy?
Do you believe that Trump’s upcoming policies will disrupt the Mexican economy’s growth?
Please feel free to share some feedback or leave a comment!