Mexican election: Base case vs. risks - TDS

"We believe a win by Andres Manuel Lopez Obrador should be the accepted, and thus well priced-in, market expectation," writes Sacha Tihanyi, Deputy Head of Emerging Markets Strategy at TD Securities.

Key quotes

"We feel the real risk in the electoral result depends on the ultimate post-election structure of Congress, and hold a base case that up to just less than 50% of both the Senate and Chamber of Deputies will be won by the Morena coalition."

"However, there are ameliorating factors arguing against a sustained adverse market reaction to a better congressional showing for Morena, including Gubernatorial counterweight and broad political push-back that would make difficult unwinding past reforms."

"Ultimately, any constructive reaction in MXN or the TIIE market will be constrained by the risk posed to Mexico from the U.S. negotiating stance on NAFTA, as well as a potential increase in sovereign risk perception due to fiscal policy uncertainty under the new administration."