Emerging market assets hit a rough patch this week as weak China data and the growing odds of an US interest rate increase this year sent investors piling into haven assets.
But the Mexican peso has been an exception, advancing some 1.5 per cent against the US dollar as some polls suggest that US Presidential candidate Hillary Clinton has regained her lead over Donald Trump.
Societe Generale says there is still a “significant risk premium to be unwound in the MXN” in the event of a Clinton victory, adding that the currency can firm to 17.5-18 per dollar from the 19 per greenback level it was trading at today.
The Mexican peso is seen as a proxy for investor sentiment towards the outcome of the November election, largely due to Mr Trump’s campaign promises to renegotiate trade deals and build a wall along the US-Mexican border.
It dipped to a historic low in late September, when Donald Trump mounted a stunning turnaround in his national poll ratings. The currency is still down 9 per cent on the year, compared with a 3 per cent decline for the wider JP Morgan Emerging Markets Currency Index.
On the flip side, SocGen argues that the Russian ruble will be the loser of a Clinton win. The ruble has strengthened 15 per cent this year. “RUB may be unlikely to participate much in the risk rally subsequent to a Clinton victory, despite its traditional status as a high-yielding EM currency.” This is due to “possible strengthening of economic sanctions from the US,” among others, it said.