How Well Prepared Is Mexico for Possible Post-Election Volatility In 2024?

A strong local currency at 2015 levels, the opportunities for nearshoring generating great expectations and a resilient stock market are key elements ahead of next year’s presidential elections

The Mexican Stock Exchange (BMV) in Mexico City. Photographer: César Rodríguez/Bloomberg
August 30, 2023 | 01:30 PM

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Mexico City — Mexico is preparing for its 2024 electoral process, but, in comparison with the 2018 electoral process, this time around there are some factors that could lessen risk aversion in the country, according to analysts.

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The Mexican economy, like those of other countries, faced the economic reactivation after the Covid-19 pandemic and, with it, a series of processes from which it has benefited, such as nearshoring, the relocation of production chains to the north of the country to be closer to the US.

Part of the economic process in the midst of the pandemic was the beginning of the cycle of interest rate hikes by the Bank of Mexico, which took the benchmark to historically high levels, a factor that also served as a catalyst for the strengthening of the Mexican peso, taking it to levels not seen since 2015.

The Mexican currency has accumulated an appreciation of 15% so far this year.


With still more than 280 days to go until the elections in 2024, the candidates who will vie for the presidency have yet to be defined, and that while the continuity of the current administration is largely expected, it also seems that the rules have changed.

“The election is going to be quite competitive, between the candidate of the ruling party and the opposition,” said Alfredo Coutiño, director of Moody’s Analytics for Latin America.

In the 2018 elections a winner had appeared to emerge before the process had even taken place, and that anticipation generated risk aversion to the campaign promises of then-candidate and now President Andrés Manuel López Obrador, whose six-year term will end in September 2024.


The cancellation of reforms enacted by former President Enrique Peña Nieto, of the Institutional Revolutionary Party (PRI), as well as the scrapping of the new international airport for Mexico City, provoked an outflow of $20 billion of foreign capital in the last quarter of 2018, according to data from Banxico.

The Mexican peso depreciated 4.94% and climbed to 20.61 per US dollar, according to Bloomberg data.

Investors remained averse to the country due to concerns about the rule of law since, months later, AMLO announced a citizen consultation to ask if the population of Mexicali was willing to continue with the construction of the plant that Constellation Brands brewery was developing.

The results brought the cancellation of the project, but which had already seen an investment of around $665 million.

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Are the conditions in place to avoid risk aversion post-elections?

The appreciation of the Mexican peso, high interest rates, a resilient market and the expectation of nearshoring are expected to help reduce the negative impact of possible post-election volatility.

The Mexican peso is preparing for such a scenario. Janneth Quiroz, chief economist at brokerage Monex, explained that not only Mexico will be affected by domestic processes, but also the US.

After the appreciation that has taken the currency to levels not seen since 2015, analysts are beginning to observe a depreciation due to the effect of the cut in Mexico’s interest rate.


Coutiño states that the Mexican currency presents a ‘misalignment’.

“An anti-market government with radical policies could generate the environment for an exchange rate and financial correction in the country,” he said.

“The exchange rate has already corrected “automatically” to medium-term market expectations, and we expect exchange rate stability in 2024, in the same band of 17-18 pesos per dollar,” said Galilei Consulting’s CEO Rodolfo Sosa.

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Marcelo Ebrard and Claudia Sheinbaum, two of the candidates vying to represent President Andrés Manuel López Obrador's Morena party in the 2024 elections. The nominee will be announced on September 9 following a poll. Photographer: Luis Antonio Rojas/Bloombergdfd

Expectations regarding nearshoring

The relocation of production chains to Mexico could reshape the country’s economy through the arrival of foreign investment, more companies focused on manufacturing, with companies in some states having changed their line of business to take advantage of the moment, and the expansion of the industrial real estate sector.


“Nearshoring is positive, but it is legally grounded in the [US-Mexico-Canada free trade agreement] USMCA. Mexico has already displaced China as the largest trading partner of the US,” said Sosa.

Analysts at Intercam Casa de Bolsa brokerage highlighted in a report that public and private efforts are still lacking in order to fully capitalize on the so-called ‘Mexican momentum’ brought by nearshoring, such as in the energy and security infrastructure areas, and so public investment is key forconsolidation, according to the analysis entitled ‘Let’s talk about Nearshoring 1.0′.

“It all depends on the winner [of the 2024 elections] and the government program they present. If the winner presents a government plan with policies and economic activities that instead of giving certainty to the markets generate uncertainty, then the environment can deteriorate and affect the economy,” Coutiño said.

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More players in the stock market

The stock market is another element to take into consideration. During the first half of 2018, the main stock index on the Mexican Stock Exchange saw a 3.42% decline; in the second half of that year, the index fell 12.63%.

But the Mexican stock market sector is also different. In the last local elections, the Bolsa Institucional de Valores (BIVA) was just starting operations, so it was still considered a single player in the market; in addition, the number of local investors increased in just three years, and there are currently more than six million.

Later this year, the stock market will begin to implement changes outlined in the Securities Market Law, which seeks to promote more access to the exchange to medium and small companies in the country through lower costs and shorter processing times.


However, volatility is a difficult element to overcome.

The CEO of the Mexican Stock Exchange, José Oriol Bosch, said that the election process generates volatility, a condition that is not only observed in Mexico but anywhere in the world where the process takes place; however, he emphasizes that the market has options that can reduce the negative impact.

“Risk aversion may occur, where investors or business leaders prefer to wait and see before making decisions, but I think the good thing is that the markets have evolved,” Oriol Bosch said recently at a press conference.


For the CEO of Galilei Consulting, the stock market looks positive. “Domestic investors have increased their investment levels and have benefited from digital banking”.

The security offered by the local government to investors will be the main element that will trigger confidence, which can be reflected in the proposals or policies that encourage the arrival of more projects.

“A government plan with policies that promote stability, encourage the business environment and competition, promote private investment, ensure the fair application of the law, and respect for institutions and property rights, would be welcomed by markets and investors,” Coutiño said.

He explained that this would unlock domestic private investment. “Altogether, it would put the Mexican economy into a cycle of sustained expansion of growth and development”, he said.

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