Investors See More Gains Ahead as Mexico's Peso Continues to Rally Dion Rabouin - Reuters
go to original February 3, 2017

A board displaying exchange rates is seen at a foreign exchange house in Mexico City on February 3, 2017 (Reuters/Edgard Garrido)

Mexico’s peso has improbably been the world’s top-performing currency since Donald Trump’s presidential inauguration, and an increasing number of emerging market fund managers said it could rebound further from its nosedive following the U.S. election.

Even before its inauguration comeback, a number of emerging market fund managers were betting that the peso had seen its worst days and was poised to outperform in 2017 along with other Mexican assets.

“We’ve gone from an outright short late last year to an overweight position relative to the index, just because there’s a lot of bad news priced in,” said Jim Barrineau, Schroders’ head of emerging markets debt and portfolio manager for its multi-sector bond fund.

“The real exchange rate is very, very cheap relative to history, and at this point, the bond yields are competitive with the higher yielding countries in EM.”

The peso was up 8 percent since Trump’s inauguration on Jan. 20 despite his proposal last week of a 20 percent border tax on Mexican imports and the collapse of a scheduled face-to-face meeting with Mexican President Enrique Pena Nieto.

The peso also made a technical breakout Friday, rallying through a resistance point at the 20.56 level, around where it closed on Thursday. That level marks a 38.2 percent Fibonacci retracement of its sell-off since the Nov. 8 election.

“Perceiving the 20 percent import tax comment as a starting point for negotiations, the market took some solace because it could have been much higher, say 30 percent or 35 percent,” said Gordian Kemen, global head of emerging market fixed income strategy for Morgan Stanley.

Read the rest at Reuters

Related: Mexico: What’s Next as Peso Rises (Barrons)

Related: Enrique Pena Nieto Vows to Defend Mexico's Interests in Trade Talks with US (Sputnik)

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