Mexican voters delivered a mandate at the ballot box on Sunday, and markets rebuked them the next day.
The peso tumbled more than 4 percent on Monday to a two-month low of 17.72 to the dollar, and shares of EWW, the ETF tracking Mexico’s stock market, plunged nearly 11 percent on the open market in stark reaction to Claudia Sheinbaum’s landslide victory.
Much of the worry is owed to fresh fears that Mexico’s ruling Morena Party, which secured a two-thirds majority in congress, will force through a series of unrealized projects promoted by outgoing President Andrés Manuel López Obrador. The populist voiced support for an overhaul of the Mexican judiciary and controversial changes to the constitution throughout his tenure but was stalemated by congress.
That dynamic changes in September when newly elected members of Morena will sweep into congress with one month left in Obrador’s term. The four weeks is already being hailed as “the most revolutionary month that Mexico has experienced this century.”
“There is a pipeline of 18 constitutional reforms, many of which are not market friendly, that will erode existing checks and balances, and erode the key underpinnings of democracy, from the Supreme Court to the electoral authority,” Albert Ramos, chief Latin America economist at Goldman Sachs, told the Wall Street Journal.
The reforms threaten to eliminate independent regulators, mandate a minimum wage hike throughout the country, and transfer private power in the electricity industry into state hands. Furthermore, the Mexican congress is expected to lose members in both the upper and lower houses along with a cut to federal spending on political parties.
JPMorgan analysts sounded bullish on Sheinbaum’s victory, however, noting that she addressed concerns about constitutional changes and economic policies that could merge state and private industry during her acceptance speech on Sunday.
Sheinbaum is the former mayor of Mexico City, a self-proclaimed “lifelong leftist,” and a climate scientist by trade. When Covid hit, she limited business hours in the capital and promoted a campaign for citizens to get tested even as Obrador was meeting face to face with supporters.
Sheinbaum, who is set to become the first female and Jewish president of Mexico, supports a strong welfare state and walks a thin line between her support for the state-owned oil magnate Pemex while advocating for green energy. She rode into office, in part, on a wave of support for her promise to eradicate violence against women in Mexico City, a promise she failed to deliver.
“This violence is the most formidable challenge that Claudia Sheinbaum will have to confront when she takes power in October,” read part of an opinion piece published in the New York Times following her victory.
Sheinbaum’s first challenge will be convincing voters that she doesn’t harbor intentions to significantly transform Mexico against the wishes of the people.
“I don’t want everything to be occupied by the same party, so there can be a little more equality,” 29-year-old voter Yoselin Ramírez, who voted for Sheinbaum but split the rest of her ballot in protest of a super-majority rule, told PBS.
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