Investors bet against Mexico in case of Trump win

Investors have placed bets worth around $745m that Mexico’s stock market will fall in the closing days of the US presidential race as opinion polls suggest Democratic candidate Hillary Clinton’s lead over Donald Trump, the Republican candidate, has narrowed.

The bets against the Mexican stock market have come via BlackRock’s $1bn Mexico exchange traded fund. Approximately three-quarters of the ETF’s assets are being shorted, suggesting some investors are preparing for a Trump win.

Around 80 per cent of Mexico’s exports go to the US. The Latin American economy is expected to suffer if Mr Trump wins the White House, due to his protectionist trade and immigration policies.

The ETF bets against the Mexican stock market increased substantially following the FBI’s decision to open a new probe into Mrs Clinton’s use of a personal email server during her time as secretary of state.

“We have seen a big surge of demand for [Mexico bets via this ETF] in recent weeks,” said Simon Colvin, a senior researcher at Markit, a data provider in London.

The price of the iShares ETF has declined around 6.7 per cent over the past two weeks, tracking the Mexican stock market in US dollar terms.

“[The ETF] and Mr Trump’s polling numbers have been moving in tandem,” added Ihor Dusaniwsky, head of research at S3 Partners, a New York-based financial analytics provider.

Mr Dusaniwsky said that bets against Mexico’s stock market via the ETF had shrunk in the first half of 2016 to around $315m by mid-June, coinciding with weakness in Mr Trump’s ratings. But as support for Mr Trump rose in the second half of the year, so too did the short positions against Mexican equities.

Investors have pulled around $1.2bn in the first nine months of this year from the 30 Mexico ETFs listed in the US and on the domestic Mexico stock market, according to ETFGI, a London-based consultancy. Assets held in the 30 ETFs stood at $3.9bn at the end of September.

Volatility in the Mexican currency has also reached a five-year high, mirroring the twists and turns of the US presidential campaign.

Edward Glossop, a Latin America analyst at Capital Economics, a London-based consultancy, said victory for Mr Trump would have “significant repercussions” for Mexico, but a weaker peso should help to cushion the economy from the worst effects.

“The manufacturing sector and the states in the north-east where industrial activity is most concentrated would clearly have the most to lose. But the tourism sector should benefit from a weaker peso,” said Mr Glossop.