Oil, treaties, and stock: The doubts surrounding the government of López Obrador
International markets will be cautious with AMLO and you should do the same if you have invested in Mexico
According to different rating agencies and analysts like Jaime Reusche of Wall Street, "the course of López Obrador's administration will be somewhat uncertain this year, as the political transition unfolds and its influence in the fiscal landscape begins to be felt." The British consultancy Pantheon Macroeconomics affirms that the market will remain cautious while López Obrador gives signals about the economic policies he will apply and affirms that "the markets could feel calm while López Obrador approaches an orthodox and friendly relationship with investors".
Leer en español: Petróleo, tratados y acciones: Las dudas alrededor del gobierno de López Obrador
In addition, there is little likelihood of confrontation with other political parties, "although the economic plan of the president-elect has not yet been disseminated in its entirety”.
In economic terms, one of the main concerns resulting from the victory of AMLO is the increase in risks in the oil sector. According to Fitch, "although it is unlikely that the reform of the energy sector will be annulled, the election of López Obrador could impact the agenda of structural reform in an economy with a stable or declining debt."
Another concern in the wake of AMLO's victory is the negotiation of the North American Free Trade Agreement (NAFTA), since a substantial reform of the agreement would affect trade and investment in Mexico. In other words, in order to evaluate the economic repercussions of the president-elect's victory, it is essential to know what his relationship with the United States will be like. However, the future of this relationship is uncertain because the composition of the new congresses in both countries is unknown. In this area, the greatest risk is the possible application of tariffs to imports of automobiles from Mexico, as has already happened with aluminum and steel, since the United States receives 88% of Mexican automotive exports.
Also read: What awaits Mexico if López Obrador wins?
However, for the tranquility of the Mexicans, in his speech to close the campaign, Lopez Obrador proposed to Trump an international agreement "not only focused on trade but on regional cooperation, jobs, wages, migration and security". AMLO confirmed through Twitter a call with Trump where an agreement was proposed for development projects that generate jobs in Mexico and reduce migration.
Recibí llamada de Donald Trump y conversamos durante media hora. Le propuse explorar un acuerdo integral; de proyectos de desarrollo que generen empleos en México, y con ello, reducir la migración y mejorar la seguridad. Hubo trato respetuoso y dialogarán nuestros representantes.— Andrés Manuel (@lopezobrador_) 2 de julio de 2018
This would be achieved by enhancing regional development through the massive generation of jobs, which would represent an improvement in the quality of life of Mexicans. In addition, the rating agency JPMorgan discards risks to public finances and the rating agency Moody's points out that it is unlikely to materialize policies that will affect the private banking business in Mexico in the medium term.
In a first speech, López Obrador promised to respect the autonomy of the central bank, avoid raising taxes and stick to legal channels while reviewing oil sector contracts approved by Peña Nieto. He added that "preference will be given to the most humble and forgotten," noting that about half of the inhabitants of the country live in poverty.
AMLO also promised not to nationalize companies or abandon NAFTA, and said his program can be financed without deficit spending, with the money saved by eliminating corruption. In addition, according to JPMorgan, the management of López Obrador as head of the Federal District Government led to an increase in debt by 52%, but also a GDP growth of 63%, encouraging figures for Mexicans in the new government.
Regarding the impacts on the stock market, JPMorgan pointed out that there would be some affected companies (Televisa, América Móvil, Grupo Mexico, Peñoles, OHL) and other local consumption companies that benefit (Bachoco, Lala, Cemex).
LatinAmerican Post | Sofía Carreño
Translated from “Petróleo, tratados y acciones: Las dudas alrededor del gobierno de López Obrador”