Mexico peso drops, stocks tumble on Morena supermajority concerns

Mexico’s peso tumbled as much as 4.1% against the dollar on Monday and the local stock market fell over 2% after the ruling party scored a surprisingly strong election showing and looking poised for a super-majority that markets fear might bring constitutional change and diminish checks and balances.

Claudia  Sheinbaum  won a  landslide victory  in Sunday’s presidential election, which was widely expected. But the scale of the gains for the ruling Morena party and its allies took markets by surprise, with some fearing this would pave the way for the group to pass constitutional reforms without opposition support.

The peso hit a fresh seven-week trough of 17.7207 to the dollar, a more than 4.1% drop, LSEG data showed. By 1354 GMT, the peso had trimmed some of its losses to trade at 17.56 to the dollar, down 3.2%.

“The question is whether the Morena party has done so well that it could command a super-majority and try to pursue market non-friendly policies of constitutional reform,” said Chris Turner, global head of markets at ING.

The latest losses mean the currency has weakened over 3% since the start of the year, a sharp turnaround for the unit, which was, until recently, one of the few emerging markets currencies to have gained ground in 2024 against a strong dollar.

The benchmark stock market index  (.MXX), opens new tab  fell 2.3% in early trading, while the MSCI index  (.MIMX00000PUS), opens new tab , priced in dollars, dropped 4.7%. The iShares MSCI Mexico ETF was down 5.7%.  (EWW.P), ​​opens new tab

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Mexican sovereign bonds were little changed, with the spread measured by JPMorgan’s EMBIGD index  (.JPMEGDMEXR), opens new tab  tightened by one basis point to 297 bps.

Sheinbaum, a climate scientist and former mayor of Mexico City, won the presidency with between 58.3% and 60.7% of the vote, according to a rapid sample count by the electoral authority, in what is set to be the highest vote percentage in Mexico’s democracy history.