Why investors view Mexico as LatAm’s new safe haven

We forecast the Mexican peso will appreciate by 4.9% in 2023 to an average of 19.2/US$, up from 20.2/US$ last year. This will be an unprecedented three-year streak of gains and one of the largest among EMs.

What you will learn:

• But our fair value estimates suggest that the space for additional gains could be limited and our baseline forecast of a global slowdown adds downside risks.
• Mexico has become the new safe haven for foreign EM investors despite local investors’ concerns over President Lopez Obrador’s economic policies and erosion of public institutions. Draconian austerity and prudent monetary policy have helped Mexico to overcome some of its macroeconomic vulnerabilities, especially when compared to other EMs and LatAm neighbors.
• Geopolitical tensions and trade decoupling between the US and China show Mexico in a more favorable light. Whereas Mexico has improved its economic fundamentals, macro imbalances in previous market darlings Chile and Colombia have deteriorated markedly.