Markets around the world were in awe while the US election results were called on November 8th. At the end of the count, the House, the Senate and the Presidency were all red, and so were the markets. The Mexican peso, which throughout the campaign had been seen as a proxy for the President Elect‘s prospects, sank to its lowest level in history, plunging over 13% having its biggest fall since the so-called Tequila Crisis, in 1994.
Throughout his campaign, Donald Trump proposed increasing import tariffs, scrapping regional and global trade deals, and blocking worker remittances to Mexico. According to Nuno Teixeira, Head of Institutional & Retail Solutions Investment and client solutions investment division at Natixis, Donald Trump’s program seems more positive for equities, «with his proposal to cut back the maximum corporation tax rate from 35% to 15%, but his ultra- protectionist stance would dent companies with the most international exposure.» However the market’s first reaction was a sell-off.
While policy uncertainty will no doubt taint the markets, Natixis believes industrials, defense and oil would benefit from a Trump Presidency. Gold, is also expected to gain. Meanwhile, healthcare might get a surge given Trump wants to call into question the universal healthcare program implemented by the 2010 Obamacare legislation.
Emerging Markets, with the exception of Russia are expected to suffer in the short term. However, “in reality, if Trump were to keep to his Mexico trade agreements campaign promises, he may find punitive trade measures counterproductive given Mexico is the US’s second largest export destination and trade between the US and Mexico is interlinked.» Said Olga Fedotova, Head of Emerging Market Credit Research at AXA IM. Trump himself said in his speech, that he would be working with other countries.
According to Marco Oviedo, Barclay‘s Mexico Chief Economist and a former Mexican President Advisor the peso could fall to 22 per dollar, from an original level of 18.35 right before the election results. During the days prior to the election, the peso posted a four-day rally while expectations of a Democratic win grew. Mexico’s Central Bank Governor Agustin Carstens and Finance Minister Jose Antonio Meade have prepared a contingency plan but they informed in Mexico that they will not raise rates out of schedule. The next raise is expected to happen next week at their policy meeting.