- JP Morgan believe that the Mexican peso is in the midst of a structural transformation and is now on a secular appreciation trend. This makes it one of the most attractive EM currencies to own over the medium term. They are OW MXN and MW local bonds in the GBI-EM Model Portfolio. Cyclical factors are to remain a tailwind for MXN as carry will likely stay appealing throughout Banxico’s easing cycle this year. They don’t expect Mexico’s presidential election to generate much market volatility.
- They are also receiving 2Y TIIE vs US OIS to position for a lower terminal rate in Mexico in a context of Fed cuts. They keep a 5y TIIE receivers vs. short 10y Mbono in anticipation of a temporary spike in supply of Mbonos in 2H24.
- JPM say that the transformation in MXN is being driven by three forces: (1) The structural rise of remittances; (2) The availability of alternative portfolio hedging instruments, dampening the peso’s volatility; and (3) The expected future benefits from near-shoring via FDI and increased exports in the future. They note that Mexico overtook China as the top exporter to the US last year.
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