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Mexico's peso tumbles against the dollar after Claudia Sheinbaum's election victory amid fears America's neighbor will be plunged into left-wing dictatorship
Mexico's newly elected and first female president Claudia Sheinbaum faced a market meltdown hours after being elected as stocks and the value of the peso dropped.
Stocks fell nearly 6 percent and the peso lost as much as 4 percent in the hours after Sheinbaum won a landslide victory in Sunday's presidential election.
The scale of the gains for the Morena party and its allies took markets by surprise, with some fearing the results would pave the way for the ruling coalition to pass constitutional reforms without opposition support.
The Mexican peso earlier hit a fresh seven-week low of 17.7207 to the dollar, more than a 4.1 percent drop, LSEG data showed. By 1:30 p.m. EDT, the peso was trading at 17.64 to the dollar, down 3.7 percent.
'The question is whether the Morena party has done so well that it could command a super-majority and try to pursue market non-friendly policies of constitutional reform,' said Chris Turner, global head of markets at ING.
Mexico's newly elected and first female president Claudia Sheinbaum faced a market meltdown hours after being elected
The Mexican peso earlier hit a seven-week low of 17.7207 to the dollar, more than a 4.1 percent drop, on Monday after her election
The latest losses mean the peso has weakened more than 3 percent since the start of 2024, a sharp turnaround for the currency, which was, until recently, one of the few in emerging markets to have gained ground against a strong dollar this year.
Mexico's benchmark stock market index fell 5.9 percent, while the MSCI index, priced in dollars, dropped 10 percent. The iShares MSCI Mexico ETF was down 9.4 percent.
'The main challenge for president-elect Claudia Sheinbaum will be to bolster market sentiment and provide a predictable and investment-friendly policy and regulatory framework,' Alberto Ramos, head of Latin America economics research at Goldman Sachs, said in a client note.
'Ultimately, the new administration will be challenged not to encroach on private sector activity and free markets, and to avoid further erosion of institutional quality.'
The Morena party that López Obrador founded and in which he remains far more personally popular than Sheinbaum, appeared to be on track to win the two-thirds majority needed to change the Constitution.
López Obrador has already laid out 20 constitutional changes he plans to submit, including the elimination of independent oversight agencies and stricter limits on private investment, which worries foreign investors.
López Obrador has already cracked down on private and foreign investment in the energy sector, and now wants to ban new industrial sites in any area of Mexico suffering water stress - essentially the whole, economically vibrant north of the country.
But other political provisions also worry and divide Mexicans.
The scale of the gains for the Morena party and its allies took markets by surprise. Crowds of flag-waving supporters celebrated Sheinbaum's victory (pictured)
Foreign investors worry lame duck president Andres Manuel Lopez Obrador will pass constitutional changes that put stricter limits on private investment
'The climate of political polarization has gotten worse during the current administration,' Moody's Analytics Director Alfredo Coutiño wrote in a report Monday.
'The country is significantly divided and will require the new president's political leadership to restore national unity.'
President Joe Biden offered his congratulations to Mexico's new leftist president, as he anticipates a new chapter in U.S.-Mexico relations where the border crisis is certain to cause friction.
'I just spoke with Claudia Sheinbaum to congratulate her on her historic election as the first woman president of Mexico,' Biden said on X.
'I look forward to working with the President-elect in a spirit of partnership and friendship – advancing the values and interests of both our nations to the benefit of our people.'
Biden is set to sign a new executive order Tuesday that will ban migrants who cross the border illegally from requesting asylum, The Wall Street Journal reported.
Sheinbaum, a scientist by training, won around 58-60 percent of votes, according to preliminary official results from the National Electoral Institute.
She has promised to continue all of López Obradors populist policies, including a universal pension for the elderly and a program that pays youths to apprentice.
Mexico's persistently high levels of violence will be one of her most immediate challenges after she takes office October 1.
On the campaign trail, she said little more than that she would expand the quasi-military National Guard created by López Obrador and continue his strategy of targeting social ills that make so many young Mexicans easy targets for cartel recruitment.
'Let it be clear, it doesn't mean an iron fist, wars or authoritarianism,' Sheinbaum said of her approach to tackling criminal gangs, during her final campaign event.
'We will promote a strategy of addressing the causes and continue moving toward zero impunity.'
The scientist has also promised to expand welfare programs, though Mexico has a large deficit this year and sluggish GDP growth of just 1.5% expected by the central bank next year.