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Trading  | July 1, 2018

As expected, Mexico has just elected its first leftist president in decades, with Andrés Manuel López Obrador (or AMLO) winning in a landslide and a near majority outright, or 49% of the vote early exit polls showed; right-left coalition leader Ricardo Anaya, in distant second place with 27% and the incumbent PRI party’s Jose Antonio Meade, with 18%.

And, as Bloomberg headlines flash red, Obrador is now de facto president as his main rivals have conceded:


And, adding to the concerns that AMLO may start rolling back energy privatization programs and issue more debt, is that his Morena party just won a majority in the Lower House:


The victory of AMLO, who suffered defeats in the last two presidential votes, will hardly come as a surprise, as has led by double digit numbers throughout this campaign. His popularity stems from his antiestablishment platform (sound familiar?) which has been riding a public revolt against entrenched corruption, rampant violence and an economy that’s failed to deliver higher living standards for the common man and especially the poor, which comprise about half of Mexico’s 125 million population. He also campaigned with promises for economic reform that has been underlined by a desire to freeze prices of gasoline in Mexico for 3 years, as well as a reduction of external investment in the energy sector.

AMLO has also promised to ramp up social programs and, like so many of his antiestablishment peers, has vowed to fund them without deficit-spending by eliminating graft, a claim which as Bloomberg laconically adds, “has been greeted skeptically by economists.” He’s also promised not to nationalize companies or quit Nafta. Investors are worried however that he may cancel oil contracts signed as part of outgoing President Enrique Pena Nieto’s energy reforms.

* * *

The victory of a leftist in Mexico is a stark reversal for the Latin American nation which unlike most of its peers has not had a socialist leader in decades.

As Bloomberg notes, Lopez Obrador has promised to govern as a pragmatist. Still, his procession toward victory has alarmed many investors and business leaders, who worry that he’ll roll back privatization of the energy industry and push the country into debt by spending more on social programs.

Those concerns will be amplified if Lopez Obrador’s Morena party wins majorities in both houses of Congress, which earlier surveys had suggested is likely.

With the election outcome widely expected, there was little reaction in markets aside from the USDMXN which has enjoyed a relief rally, although as in the case of the Turkish Lira, many expect this will be short-lived as many anticipate Mexico’s problems are set to worsen under the new administration.

What is more notable is that like so many other nations, Mexicans have also opted for change and turned their back on the establishment and the only two parties to have run the country in almost a century. There are plenty of reasons they might want to kick out the governing class.

“We need a complete transformation in Mexico,” said Sergio Oceransky, 45, as he voted at a polling station in central Mexico City. “We’re experiencing a tremendous political crisis that’s no longer sustainable.”

On the campaign trail, many voters say physical security was their top concern. A decade-long war on drug cartels has pushed the murder rate to record levels.

His predecessor, Pena Nieto, also started off on the right foot, opening Mexico’s energy industry to private investors and winning a reputation as an economic reformer early on. However, a surge in violence, and a string of graft scandals that dragged in the president and his family, Pena Nieto is ending his six-year term with some the lowest approval ratings in the history of the presidency. He will remain in office until December when Mexico’s 5 month gap between elections and inauguration lapses.

And since both Obrador and Trump won on an antiestablishment platform, we look forward to them getting along just great.

* * *

As discussed previously, here are the main campaign issues that dominated the presidential campaign (via Reuters):


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