Brazil Emerges as Refuge for Traders Fleeing Mexico on Trump Win

  • Peso sank on concern Trump will scrap Nafta trade agreement
  • Brazil has limited trade relationships with the U.S. economy

After being buffeted by an impeachment, a recession and a corruption scandal, Brazil may now become a destination for traders seeking shelter from Mexico in the wake of Donald Trump’s surprise win.

BMI Research and BNP Paribas say Brazil will outperform as the fallout from Trump’s presidential triumph reverberates across Latin America. While Mexico sends almost 75 percent of its exports to the U.S., Brazil has limited trade ties with the world’s largest economy. In fact, the two have no free-trade agreements and the U.S. accounts for under 13 percent of Brazil’s exports. That’s less than China, the European Union and a block of developing countries in the Western Hemisphere. 

Mexico’s peso plunged 7.7 percent Wednesday on concern Trump will follow through with pledges to scrap Nafta, which has powered Latin America’s second-biggest economy for more than two decades. Brazil’s real fell less than 2 percent and remains the world’s best-performing currency this year with a 23 percent advance. Trump, who has also promised to clamp down on illegal immigration from Mexico, said in his victory speech that he will focus on rebuilding U.S. infrastructure. That means Brazilian companies may benefit from higher commodity prices on the back of increased spending under Trump.

“While we believe that uncertainty will continue to overshadow Mexican assets for months to come, markets with higher industrial and precious metals exposure will likely outperform,” BMI said in a report, adding that there is “significant upside potential for Brazilian assets after a short-term correction.”

Rio de Janeiro-based Vale SA, the world’s largest iron-ore producer, saw its stock jump as much as 5.6 percent, pacing gains in the industry. Jefferies Group LLC said miners are set to benefit as increased U.S. infrastructure spending pushes up demand for copper and other mined commodities at a time of tightening global supply.

“With the Trump victory, there are a lot of uncertainties regarding the future macro policy in the U.S., and what will be the geopolitical landscape going forward,” said Regis Chatellier, a London-based fixed-income strategist at Societe Generale SA. “But indeed, in the short term, and at a regional level, Brazil should outperform Mexico.”

Before it's here, it's on the Bloomberg Terminal.