Mexican banks lose some of their lustre
New president’s move to the left sparks growth fears as banks hit by deteriorating macro outlook as well as fee regulations.
Mexico’s banks are facing a harder 2019 than they were expecting just a couple of months ago as the fallout from recent decisions from the country’s new president is digested by the markets.
Since Andrés Manuel López Obrador (often called Amlo) took power on December 1 there has been a steady flow of negative news hitting the outlook and valuations of banks operating in the country.
The decision to cancel the new Mexican airport was the first event to spook investors, but arguably the threat to the country’s energy reforms (Amlo has said he will not have any deep-water auctions for at least three years) has had a bigger impact.
In the week following Amlo’s inauguration ,there was a net outflow of funds from Mexico’s financial markets after two preceding weeks of inflows.
Capital Economics’ Latin American economist Edward Glossop estimates that Amlo’s accession to power has already led to an increase in the country’s risk premia (reflected by the sovereign bond spread) of between 40 basis points and 50bp.