Sentido Común – Negocios, Economía, Mercados
Mexico’s surprise interest-rate hike Thursday supported the peso, which is still likely to be one of the weakest emerging market currencies, Morgan Stanley says.
With the Central Bank of Mexico rate hike of 50 basis points Thursday to 4.25%, the Mexican peso (MSN) has strengthened by 2.8% against the dollar this week. The iShares MSCI Mexico Capped exchange-traded fund ( EWW) is off by 0.2% today, but has rallied 6% this week, in line with the major emerging-market ETFs, as emerging markets recover from Brexit. Still, Mexico has been a disappointment among developing economies this year.
The iShares MSCI Emerging Markets ETF ( EEM) is up 7.5% year to date, including a continued rise Friday, while the Mexico ETF is up less than 1% and the iShares Latin America 40 ETF ( ILF), with a big boost from the rise in Brazil equities, is up 24%. The emerging market ETF is up 7.5% this year.
Morgan Stanley’s Latin America economics and strategy team of Luis Arcentales, Dara Blume and Aaron Gifford writes:
«Exchange rate jitters once again forced Banxico into action with the central bank delivering a surprisingly aggressive half-point interest rate hike. The immediate trigger for the move was an «important deterioration in external conditions,» which could «adversely affect» the evolution of inflation. While the statement acknowledged that Brexit had hurt the prospects for global growth, trade and confidence, it was on the associated market volatility that Banxico focused more closely. Indeed, policymakers stressed that the rate hike sought to prevent the risk that recent peso depreciation (and related relative price adjustments) could lead to a de-anchoring of inflation expectations … In the immediate aftermath of Brexit, the finance ministry announced a spending cut (M$32 billion) …
The question is whether in times of EM FX stress, MXN continues to be the short EM proxy. Certainly, two surprises within one year are likely to drive investors to think twice before using MXN as a proxy hedge once more. However, we believe even after thinking twice, investors are likely to make the same choice again. MXN’s high liquidity, low yields, and beta to risk render it the easiest way to sell EM FX, even after a 50 bp hike. What’s more, markets may question how much more hiking the central bank can do after 100 bp year to date, given weak growth and anchored inflation expectations (both of which were explicitly noted in the statement) …»
Earlier this week, Eurasia Group lowered its outlook on Mexico to neutral. See our post, » Mexico Reformed Energy, Telecom, Banking. Now What?»
