Mexico dodges a bullet in Trump's trade war
Donald Trump’s decision to call off threatened duties on imports from Mexico closes the latest episode in his trade war reality show.
Donald Trump's decision to call off threatened duties on imports from Mexico closes the latest episode in his trade war "reality show", says Gina Chon on Breakingviews. In return, America's southern neighbour has agreed to deploy its National Guard to reduce the number of migrants heading for the US. The country had little choice but to comply with US demands, says The Economist. A "whopping 80% of Mexico's exports" head north.
A reform story gone awry
Last year brought victory for left-wing populist Andrs Manuel Lpez Obrador known as AMLO in the country's own presidential election. Mexican equities have underperformed global benchmarks over the last five years.
AMLO has set about unpicking reforms of the country's education and energy sectors passed by predecessor Enrique Pea Nieto, whose business-friendly administration was tarnished by corruption scandals.
One of the new president's "first official acts" was to end construction of a "desperately needed new airport in Mexico City" that was already 30% complete, says Kenneth Rogoff for project-syndicate.org. Although he campaigned on a strong anti-corruption platform, AMLO's administration has "eschewed competitive bidding for more than 70% of the contracts it has awarded". Economic growth has also disappointed. Latin America's second-biggest economy shrank 0.2% in the first quarter of this year.
Still, AMLO differs from a typical Latin American populist in one crucial respect, say John Paul Rathbone and Jude Webber in the Financial Times. He has promised to balance the budget and cut public-sector salaries, including his own.
That has "kept international investors sweet" so far. For all the "unorthodox politics" and "surface turmoil", Mexico has relatively stable economic foundations, reckons Craig Mellow in Barron's. Inflation has plunged 3% in the past 18 months to 4.4.% and "all-but-inextricable links" to US industry bring a measure of reflected economic dynamism.
If the trade standoff between Beijing and Washington really is the new normal, then Mexico is the "obvious base" for US companies seeking a low-cost destination to relocate their factories, adds John Authers on Bloomberg.
On a cyclically adjusted price/earnings (p/e) ratio Cape of 19, Mexican stocks are reasonably priced compared with other markets. With the tariff resolution helping the peso bounce off five-month lows, "there must be a decent chance of a rebound now".