13 Jul 2023

The Mexican peso enjoyed this century’s second-strongest bull run in the first half of the year, with wide rate differentials, stable public finances, “nearshoring” hopes, and surging inward remittance flows, combining to send the exchange rate soaring. The Banxico’s commitment to maintaining benchmark interest rates at least 600 basis points above their US equivalents has done much of the heavy lifting, with returns on dollar-funded trades exceeding 19 percent this year. Despite a reputation as a leftist economic nationalist, President Andrés Manuel López Obrador has proven less interventionist and more fiscally conservative than investors once feared. The country has pushed...

With geopolitical tensions between the US and China forcing businesses to diversify supply chains, the country’s stability, low labour costs, and geographic proximity have raised hopes that a “Made in Mexico” moment is at hand. But if US demand for tangible goods slows, and vehicle prices flatline, export growth won’t continue at the pace that has been set over the last year. Under López Obrador, energy policy has become less flexible and even less climate-friendly, limiting the extent to which companies with net-zero commitments can relocate production facilities. Critical regulatory bodies remain captive to political whims. And the country devotes...