A sideways look at economics

Mexico’s IPC stock index has been among the world’s best performing equity indices this month, up around 4% in local currency and 7% in US dollars. The Mexican peso has also been one of the world’s best performing currencies in August. A risk-on mood among investors, higher commodity prices and a rally in emerging market assets more generally have helped. But Mexico has outperformed most other emerging markets and the reason for this seems to be the diminishing prospects of Donald Trump becoming the next US president!

As the chart below shows, the rally in Mexican assets this month has coincided with Hillary Clinton opening up a six percentage point lead over Donald Trump in the polls. This should not come as a big surprise. After all, around 80% of Mexican exports go to the US and Mexican nationals living in the US send billions of dollars home in remittances every month. Mr Trump has threatened to disrupt both of these flows if he becomes president. If Mr Trump gets his way, Mexico would also need to stump up between $US 5-10 billion to fund construction of a wall.

Mr Trump’s stance on a number of key policies is somewhat unclear, making it hard for investors to know the best way to position themselves for the prospect of him winning November’s election. But his stance on Mexico – explained in the ‘positions‘ section of his website – is clearer than most of his other policies. Taking a short position in either the Mexican peso or Mexican stock market ahead of November’s election would be a sure way to make money if Donald Trump goes on to win.