Mexican stocks deflect Donald Trump’s trade blows
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For a country that has been the target of US President Donald Trump’s ire over trade, drugs and migrants, Mexico is proving surprisingly resilient. The country’s benchmark IPC stock index is up 7 per cent this year, compared with the S&P 500’s 4 per cent drop and Canada’s TSX index’s 1.8 per cent gain. The peso has also held up well, rallying 2.5 per cent against the dollar since January.
This is a testament to Mexico’s newly elected President Claudia Sheinbaum’s ability to navigate tensions and negotiate a delay on tariffs for the country’s exports. If this continues, Mexico’s assets could end up being among 2025’s unexpected winners.
Betting on Mexico’s equity market is not as counterintuitive as it sounds. True, the two countries’ economic ties run deep: 82 per cent of Mexico’s exports went to the US last year. However, its publicly listed companies are largely domestically focused, leaving them relatively sheltered from direct tariff risk.
Mexican stocks have also become cheap. The country’s stock market fell 13 per cent last year. Sheinbaum’s landslide victory last summer had spooked investors, who worried that her promise to expand the welfare policies would widen the country’s budget deficit and weigh down on economic growth. Trump’s return to the White House added to concerns. The IPC index is trading at a price-to-earnings ratio of just 11 times, below its historical average of about 14-15 times.
This leaves room for upside — provided Sheinbaum can continue to carve out reprieves from US tariffs. Unlike Canada’s Justin Trudeau, who stepped down as prime minister this month, Sheinbaum has been deft at reading and handling her US counterpart. Rather than trading barbs and retaliatory threats, she has emphasised co-operation and Mexico’s efforts to secure the border and fight fentanyl trafficking. That was enough to earn Trump’s respect: he has called her “tough.”
Longer term, the risk for Mexican equities is that the effects of the trade war could start trickling through the real economy into domestic consumption. Analysts at Capital Economics reckon a 25 per cent tariff on all US imports from Mexico could result in a 1 per cent contraction of the economy. But for now at least, investors seem to trust that Sheinbaum’s approach to Trump is the right one.
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