This ‘Trump Trade’ Marries Mexican Peso With Putin’s Ruble

  • Investors balance peso shorts with high-yield ruble holdings
  • Mexico seen suffering if Trump wins, while Russia may benefit

HSBC's Bloom: Mexican Peso Is the Trump Thermometer

In the quest for the consummate “Trump trade,” emerging-market investors have found a new odd couple, pairing the currencies of two countries that could be most affected if he wins the presidency.

Amundi Asset Management has been selling the Mexican peso and buying the ruble to profit from the prospect of a victory for Republican nominee Donald Trump, whose hard line on the U.S.’s southern neighbor is as well known as his admiration for Russian strongman Vladimir Putin. GAM UK Ltd. likes the idea, too, and says it’s gaining popularity.

“Buying the ruble against the peso makes a lot of sense as a Trump trade,” said Paul McNamara, who oversees $6 billion at GAM, including the world’s eighth-biggest emerging-market bond fund.

While the short-peso trade has been popular since the summer, adding the ruble position has given a boost to returns. The strategy lost money after Trump was deemed to have been beaten in the first presidential debate Monday, but it has still returned about 6 percent this month as he gained in the polls -- around twice as much as shorting the peso against the dollar.

“We’d need something pretty decisive to kill off this trade,” McNamara said. “We like the ruble anyway, whereas Mexico is the bit that’s much more dependent on Clinton versus Trump.”

Peso Plunge

The volatile U.S. presidential election has analysts scrambling to come up with ways to bet on -- or hedge against -- a Trump victory. Everything from buying gold to selling Canadian dollars and U.S. Treasuries has made the list. Fears that a Trump presidency would roil Mexico’s relationship with its largest trading partner have driven the peso down 10 percent against the dollar in the past six months, more than any other major currency. The post-debate rebound made only a small dent in that drop.

The ruble has rallied along with oil prices over the past few months. Investors piled into Russian local-currency bonds to benefit from some of the highest yields in the world. Those returns reflect the “Putin premium” that investors demand to compensate for sanctions and the other tensions between Russia and the West, according to Jan Dehn, head of research at London-based Ashmore Group Plc. Trump’s praise for Putin’s leadership has fueled speculation a victory for him could bring détente and a boost for the Russian currency.

“People are looking for a high-yielding currency to counterbalance the market risk and the Russian ruble stands out,” said Sergei Strigo, who oversees $2.7 billion as Amundi’s head of emerging markets in London. 

The Russian central bank has kept interest rates in the double digits for almost two years in an effort to bring down surging inflation. That makes the ruble an attractive haven amid volatile markets even without any bounce a Trump victory might provide. Deutsche Bank AG analysts including Gautam Kalani listed buying the ruble against the dollar as one of their top currency trades in a research note published Tuesday.

Ruble Rebound

“Unlike Mexico, where the economic momentum is turning and deteriorating, in Russia the opposite is happening,” said Michael Bolliger, head of emerging-market asset allocation at UBS. “At the same time the central bank is doing a fantastic job in staying disciplined.”

Both currencies tend to move when oil does, providing an extra level of protection to swings in crude prices before the elections, he said.

Skeptics of the trade say the peso’s slump over the last few months means there’s little room left for it to fall, while a Trump victory may trigger such a broad sell-off in emerging markets that not even the ruble would be spared.

“I don’t think the change in U.S.-Russia relations is going to be all that dramatic” from a Trump administration, said Guillermo Mondino, strategist at Citigroup Inc.

Skittish investors could close the ruble-peso trade before the vote in November. “You could take profit on this trade way before the actual election,” said Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen. “On the day, it’s probably a 50-50 call.”

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