Mexico City — The Mexican peso will benefit from the relocation of Chinese companies to the north of the country that seek to maintain proximity to the United States, in the process known as nearshoring, and which will increase the amount of investment in Mexico, according to Janneth Quiroz, deputy director of analysis at brokerage Monex.
“There is potential for the Mexican peso to remain stable,” she said during the presentation of the firm’s 2023 Economic and Stock Market Outlook.
One of the main elements that would favor the Mexican currency is investment, she said.
Quiroz explained that while investment plans have increased, they have yet to materialize. “We have news that there is a high demand for land and permits on the [northern] border, but possibly in a scenario where interest rates are high, relocation will be more expensive, but in the end it will happen”.
This is despite the fact that in Mexico the process for the relocation of supply chains in North America is longer compared to other countries. However, she estimated that by the second half of 2023, investments could take place.
“Several companies consider that interest rates are going to go down in order to have a lower cost of financing. We would see an impact on production or economic activity in the second half of 2024 and 2025,″ Quiroz said.
And she said that, while companies’ relocation will not have an impact in the short term, it may imply a ‘structural change’ for the Mexican economy.
A stable Mexican peso
Quiroz estimated that the Mexican peso is likely to continue to set new highs, driven by comments from the Federal Reserve, and that she does not rule out the peso rising to the psychological level of 19 pesos to the US dollar in the short term.
The peso was trading at 19.36 to the US dollar at the close of trading on November 15.
On Wednesday, Federal Reserve vice chair Lael Brainard said she favors a 50 basis point reduction in the rate hike at the US central bank’s next meeting in December. “It’s probably appropriate to move to a slower pace of hikes soon,” she said at an event at Bloomberg’s Washington bureau.
This has increased investors’ appetite for risk, who opted to leave aside safe-haven instruments such as the dollar index and, as a result, the Mexican peso benefited by climbing as the currency with the best return in the region and the second best among emerging countries, according to Bloomberg data.
However, Monex’s analysts estimate that the Mexican peso will close the year at 20.30 per dollar, which would represent a depreciation of 4.85% during the year.
Greater uncertainty surrounding the energy crisis in Russia would weigh down the performance of the Mexican peso towards the close of 2022, according to Quiroz.
“We do not have a perfect scenario, there is uncertainty (...) and where attention will continue to focus on the Federal Reserve,” she said.