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Mexican stocks demonstrated their resilience to Donald Trump’s anti-trade rhetoric on Tuesday, hitting a new all-time high as the peso’s rally in recent weeks also bolstered investors’ appetite for the country’s other asset classes.

The country’s benchmark IPC index rose as much as 1.3 per cent to 49,240.09 in morning trade, capping a stunning rally that has seen the bourse completely erase its post-US election losses and rise above the previous intraday record of 48,956.06 set last August.

The fiesta in Mexican equities is being fueled by a number of factors. The collapse of the peso – which, despite its recent rally, is still down more than 4 per cent from its pre-election levels – is providing a boost to exporters and magnifying the income of companies that report in pesos but earn the bulk of their revenue overseas.

Another driver has been the continued strength in the US economy, which should benefit Mexican manufacturers, especially given the recent conciliatory comments from Washington about the future of the North American Free Trade Agreement.

A stabilisation in oil prices since November and more dovish comments from the US Federal Reserve over the pace of future interest-rate rises is also helping to anchor sentiment. Oil income represents a fifth of Mexico’s national budget while a less aggressive Fed would ease pressure on the country’s own central bank to hike quickly.

“The main factors impacting the MXN, in our opinion, are the outlooks on NAFTA negotiations and domestic politics and of course future actions of the US Federal Reserve,” said an analyst at Nomura. “Among these three, we believe Nafta negotiations carry a significant weight for our MXN forecast. Given that the tone of such negotiations has improved, both the spot and the forecast for the USDMXN have come down (MXN stronger).”

Not everyone thinks the rally is sustainable, given Mexico’s still-weak economic fundamentals. UBS, which maintains its underweight rating on Mexican stocks, argued:

Few disagreed with our Underweight in Mexico except in the sense that there was some support for the MXP at this level. Most agreed with our view that there is too much overall uncertainty, macro weakness and policy tightness to justify ongoing high valuations (16.2x forward – the highest in EM ex. India and the Philippines – versus a long-term average of 13.9x). There was as much talk of the risk that remittances from the US may be taxed and that net FDI into Mexico is likely to fall sharply, as on the threat of border taxes and the whole subject of the possible renegotiation of NAFTA.

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