Traders Have Some Advice as Pena Nieto Clashes With Trump

  • BlackRock’s Rodriguez says Mexico must begin trade talks ASAP
  • T. Rowe Price says ignore the peso, work on getting best deal

Trump: Had 'Very Good Call' With Mexican President

Investors just want it to be over.

As the tussle between Mexico and Donald Trump heats up over the U.S. president’s insistence that the Latin American country pay for a wall along their borders and his idea to levy an import tax, short-term volatility is rising in the peso and Mexican stocks.

Investors in Mexico’s currency, equities and bonds are urging President Enrique Pena Nieto to start trade negotiations immediately to give them some certainty about what’s going to happen. The situation didn’t get any better after the two leaders spoke Friday, as Trump followed up by saying Mexico “beat us to a pulp” in trade talks.

Here’s a sampling of what professional money managers and analysts are saying:

Bring in Canadians

“There’s nothing left to do but to move forward with the negotiations.” -- Gerardo Rodriguez, a former deputy finance minister in Mexico who now manages more than $250 million of emerging-market equities and bonds for BlackRock Inc. in New York.

  • It’s been the uncertainty that has been generating this volatility really, the range of possibilities that could happen from this discussion. So, to reduce that range of possibilities and eliminate all extreme scenarios, what is necessary is a Nafta renegotiation through institutional means that includes the Canadians. I think the day that such a thing becomes official or there is progress in that direction this excessive volatility would go away.

Forget About Peso

“Pena’s focus should just be on getting the best deal for Mexico, not the peso.” -- Richard Hall, an emerging-markets analyst at T. Rowe Price who specializes in credit, rates and foreign exchange. He’s defensive short-term on the peso, but positive long-term on the expectation Mexico maintains market access to the U.S. at "Nafta-like levels."

  • My advice to Pena would be to not worry about the peso. If Pena is able to reach a good deal with the Trump administration that preserves the Mexican manufacturing sector’s access to the U.S. market, the peso will take care of itself. On the other hand, if the Trump administration is committed to protectionism, then a weaker peso is appropriate to absorb this external shock.

Respect the ‘Bully’

The best possible outcome for Pena Nieto is “kowtowing to the U.S. a bit and trying to get something in return.” -- Chase Muller, a money manager who oversees about $600 million at One River Asset Management and used options to bet on the peso close to the election assuming a Hillary Clinton victory.

  • I’m not really sure what he can do. Trump appears to be willing to bully his way into getting what he wants. EPN unfortunately doesn’t have enough bargaining power. Saying they are going to work with Trump and actually doing so and taking the pain now will help. But that may mean a sharply weaker MXN from here before it stabilizes.
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