Mexico, South Africa and India deliver political punch to markets

A clobbering for South Africa’s, Mexico’s and even India’s heavyweight markets in recent days has proved without doubt that politics can still deliver an unexpected uppercut in big emerging economies.

That took its drop in recent days to nearly 5% and means that June is currently on track to be the peso’s worst month since a 17% plunge at the start of the COVID-19 pandemic in March 2020. “You go into these events with a base case, but if you underestimate the tails and they materialize, then it is going to surprise market participants.”

With over half the votes counted from an election that began back in April, Prime Minister Modi looked set to lose his majority, raising questions whether the new alliance he spearheads will need to spend more on welfare measures rather than key infrastructure projects and reforms. International investors have been buying into both India and Mexico over the last year or two as an alternative to China, meaning that they had been susceptible to a selloff, he added. But he said it was reassuring that there had been no real EM-wide “contagion.”Come September, outgoing president Andres Manuel Lopez Obrador will be in his last weeks of power and could try to use MORENA’s new “super majority” to ram through previously rejected constitutional changes.

Source: Financial Digest (financialdigest.net)

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