Mexico City — Claudia Sheinbaum’s landslide victory in Mexico’s presidential elections this weekend and the unprecedented representation that her party, Morena, secured in Congress have stirred the country’s financial market and shaken the Mexican peso. The volatility came in spite of the announcement, just hours after the election, that Rogelio Ramírez de la O would continue to lead the Ministry of Finance, a move that intended to calm down nervous investors.
As local stock exchanges opened following the June 2 election, President Andrés Manuel López Obrador (AMLO) confirmed in his morning press conference that Ramírez de la O would remain at the helm of the Ministry of Finance to facilitate the transition. He also highlighted the official’s “prestige” in the financial world.
The main index of the Mexican Stock Exchange, the S&P/BMV IPC, dropped by 6.11% on Monday, June 3, compared to the close on Friday, May 31, as analysts weighed the preliminary election results in Mexico. Most companies on the stock index traded at a loss, led by Regional and Gentera, showing declines of over 13%. On Tuesday, the index bounced back 3,24%.
“We haven’t seen such a steep loss since 2020, the year of the pandemic,” said Gabriela Siller, chief economist at Banco Base, in a message.
The volatility during the session led the Institutional Stock Exchange (BIVA), the country’s second-largest stock exchange, to suspend trading for 15 minutes, from 11:57 to 12:12 PM (Mexico City time).
The exchange rate also felt the impact of the election result. In the first few hours of trading, the peso depreciated by more than 4.11% compared to last Friday’s close, leading emerging market’s most appreciated currency in 2023 to lead the losses among major currencies tracked by Bloomberg.
Morena’s Congressional Victory Surprises the Market
Analysts agreed that the volatility seen between Monday and Tuesday was related to the market not having anticipated such a resounding victory for Morena in Congress, and the implications such a majority could bring.
“The market’s surprise lies in the fact that, while the continuity of the current administration was expected with Claudia Sheinbaum’s victory, it was not foreseen that the new administration would have the support of a qualified majority in Congress,” wrote analysts at Grupo Financiero Monex in a note.
A qualified majority will allow for constitutional amendments. To achieve them, Mexican parties need to have two-thirds of the legislators in both the Chamber of Deputies and the Senate, which equates to 334 and 86 seats, respectively.
The Morena, PVEM, and PT coalition won between 346 and 380 seats in the Chamber of Deputies, while in the Senate, they obtained between 76 and 88 seats, according to the INE’s quick count.
Analysts from Vector and Bloomberg Intelligence noted that the preliminary results point to a qualified majority in the Chamber of Deputies, but not in the Senate, which could pose a hurdle for constitutional reforms.
However, UBS mentioned in a note that even if Morena falls short of the necessary seats for a qualified majority in the Senate, “opposition parties might lean towards and support Morena on issues that could significantly impact the business environment.”
“In general, the result consolidates AMLO’s political control and will make it harder for Sheinbaum to deviate from his roadmap,” pointed out Bloomberg Intelligence.
Monex added that from the investors’ perspective, the main concern centers on three aspects: possible constitutional changes, proposals on electoral reform and autonomous bodies, and changes regarding the Supreme Court of Justice.
Benjamín Álvarez, head of Stock Market Analysis at CIBanco, commented that most of the market volatility related to the election results occurred in Monday’s session, though there will be movements ahead, especially as the U.S. elections approach.
“Starting tomorrow [Tuesday, June 4], we will see a bit more calm, although we will continue to see volatility throughout the month, not as severe as today but still present,” he told Bloomberg Línea.
Continuity at the Ministry of Finance
In his morning press conference on Monday, President López Obrador celebrated that Rogelio Ramírez de la O would stay on as Mexico’s Secretary of Finance for a while.
“Rogelio is an exemplary public servant, a man with much prestige in the financial world who brings a lot of economic stability, so he will stay for a while, which will facilitate the transition and prevent the crises that used to happen with changes,” AMLO explained.
The statements were made before the president-elect or the finance minister confirmed the decision themselves, although Sheinbaum had already expressed her hope that the official would remain in his role during her participation in a BBVA Mexico event during her campaign.
At the same event, Ramírez de la O declined to confirm his continuation in the position but said it would be an honor to remain in the ministry he currently heads.
Gerardo Esquivel, former governor of Banxico and economic advisor to Sheinbaum, told Bloomberg Línea before the presidential election that Ramírez de la O’s stay would send a positive signal to the market.
On Monday afternoon, Sheinbaum posted a video on her X account, formerly Twitter, in which she thanked Ramírez de la O for staying and affirmed that her government would act “with dialogue, harmony, and great responsibility.”
With information from Arturo Solís
This story was updated to include information in paragraphs 15 and 16 and Claudia Sheinbaum’s message in the last paragraph.