How does the change of president affect the financial markets?


How can political announcements affect markets, especially the change of the president? The examples are many and varied. Perhaps, it is convenient to review one of the most recent and representative changes of president, that is, that of Donald Trump. Thus, we can describe what we can expect with the change of agent in Mexico.

In 2016, the trading day after the US elections was a roller coaster. The day began to fall in Asia and ended in the United States with the stock markets in full optimism.

The Dow Jones, the Nasdaq and the S & P 500, indexes of the stock exchanges in the United States, achieved historical figures, after a speech that was considered more conciliatory than incendiary. (It should be noted, investors always prefer stability).

However, the president’s plan included ending the Free Trade Agreement and the exclusion of Latino migrants in this country, which undoubtedly was particularly negative for Mexico.

A political change may affect the stock market here and in China

The global financial markets are so interconnected that, despite geographical distance, each action has its effect elsewhere. The market for stocks, Fibers or CFDs are regularly affected. Exchange rates will always be subject to the international economic conjuncture and large-scale political events.

Consequently, no matter what your investment instrument, you should follow closely some ads that are repeated systematically as:

  • Declarations of the Federal Reserve of the United States (FED).
  • Announcements from the International Monetary Fund and the European Central Bank (ECB, European Central Bank).
  • Declarations and measures of the largest Central Banks, such as the US, Europe and the main Asian powers
  • Announcements of the Federal Open Market Committee (FOMC) of the USA
  • Monthly announcement of the Non-Agricultural Payrolls (NFP), one of the most reliable indicators of the health of the US economy, which implies the creation of jobs, among others.

How do big ads affect the price of securities? For example, if the FED increases interest rates, it is expected that it will also increase the value of the Dollar and the peso will almost always depreciate.

Affected or specific beneficiaries

The political announcements, sometimes intentionally, could not directly affect the stock price, but directly from some companies in particular.

In this month, the shares of the companies Grupo México and Peñoles fell in the middle of Morena’s proposal for changes to the Mining Law, which aims to conduct consultations in indigenous communities and the threat of cancellation of concessions. What puts your projects at risk and therefore, they go down in prices, and they are so big, that in passing they lowered the price of other indicators.

What happens with the presidential transition in Mexico?

In the first moment, after the triumph of Andrés Manuel López Obrador in the presidential election in an orderly manner and dialogue with businessmen, the peso recovered. Let’s remember investors like stability.

Without further discussions of the month of July to October the peso appreciated, on August 8, 2018 it reached a minimum of 18.44 units per dollar.

However, the Mexican Stock Exchange (BMV) closed slightly lower, due to national and international pressures, that is, there were several causes:

  • It lowered the price of some shares of companies that do not agree with the vision of AMLO.
  • Delays in the renegotiation of the North American Free Trade Agreement ( NAFTA ).
  • Commercial war facing the United States and China.

In a second moment, the scenario had a greater negative accent in the national context, added to the international one. Some local causes of this were:

  • Consultation and announcement of the cancellation of the New Mexico International Airport (NAIM)
  • Initiatives of law respect to the regulation of the banking commissions and of the mining, which affects big interests.
  • Country rating agencies such as Fitch Ratings, change to a negative perspective of the country.

In a month and a half, 16 of the 35 most representative companies in Mexico that make up the S & P / BMV IPC index, entered a bear market, accumulating falls in their prices of more than 20 percent in that period, according to information of Bloomberg. From July 2, 2018, which closed at 42 thousand units, to November 26, 2018, the S & P / BMV IPC fell to 40 thousand units.

The peso also had a constant depreciation, which took it on November 23 to 20.53 per dollar, according to data from the Bank of Mexico.

At the same time, the global economy suffered crashes due to:

  • The decreases in the price of oil, which caused the downward price of international shares.
  • Global economic slowdown, which can lead countries to recession, scenario confirmed by the International Monetary Fund.
  • Deceleration in the profits of technology companies such as Apple in the United States, which also caused the downward price of international stocks.

Consequently, the reason why the Mexican and international markets are falling, is due to the changes and political positions in Mexico and negative news throughout the world.

What to expect in the inauguration of the president-elect in Mexico?

According to Oriol Bosch, the director of the BMV, the inauguration of the president-elect on December 1 and the presentation of the 2019 budget, which has a deadline of December 15, will help to give certainty to the financial markets. It is possible that the indicators recover, but we must not lose sight of the international context.

Additionally, the markets expect that the agreement of the new North American Free Trade Agreement will be respected, and the congruence between the discourse and the actions of the president and his administration, especially in the energy and telecommunications sector, said specialists consulted by Expansion.

What to do? Is it time to invest?

Although there is some uncertainty in investments in Mexico after the elections and there is an international juncture in the NAFTA negotiations, Actinver analysts believe that it is a good time to move from saving to investment.

Investing in the Stock Exchange is perhaps a good idea, since stocks are cheap and in the medium or long term they will probably increase their value. Of course, we should be careful with the issues that are under discussion (say NAIM and mining companies).

To get away, a bit of those issues, the investment in Green Bonds is an interesting option, which have great potential as they provide solutions for the future with environmental and social impact. The bond issued on November 21 has a term yield of 9.93%, for example.

The investment in Cetes is also a good investment instrument, since the interest rate is 8%, which means that many banks will pay this or more, in instruments such as Cedes or Pagarés.

You can also invest in fintech, through loans between people, which have quite attractive returns and can take you away from market fluctuations.

So, beyond a negative scenario, we must keep calm, inform ourselves and analyze the different positions, in order to take advantage of the context to improve our environment.


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