Investment: Twisting Mexican risk
Many investors are misreading the risks in Mexico.
According to bankers and analysts in New York, the first questions that corporate clients and investors always ask about Mexico relate to Nafta. Questions about the political risk from this year’s election are secondary, almost an afterthought.
However, this is getting Mexico risk the wrong way around in terms of importance.
That is because, first, the Nafta risks have been broadly overstated. Even if Nafta negotiations break down and US president Donald Trump terminates the trade deal (and that is a big ‘if’, given the growing recognition among the border states of the inter-connectedness of supply chains), Mexico would likely revert to most-favoured nation WTO status.
There would be disruption, but because of Mexico’s competitiveness as a manufacturer today, it would not be catastrophic.
Second, the risk of a presidential victory by leftist candidate Andrés Manuel López Obrador, or Amlo as he is known, is both important and growing.
An Obrador presidency could be catastrophic for Mexico
For an interconnected set of reasons, it is beginning to look like Amlo’s third attempt at the presidency could be lucky for him.