Pimco Says US and Mexico Elections Provide Opening to Buy Pesos

Maria Elena Vizcaino and Zijia Song
·3 min read

(Bloomberg) -- With high-stakes elections approaching in the US and Mexico, Pacific Investment Management Co. is hunting for the perfect moment to add to bullish bets in the Latin American market.

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Price swings tied to the presidential votes will give traders an opening to buy Mexican assets — especially the peso, said Pramol Dhawan, head of emerging-market debt at the $1.9 trillion asset manager. To him, an uptick in volatility offers a bargain on assets that stand to benefit from positive factors ahead, from the reorganization of global supply chains to interest-rate dynamics.

“The fundamentals will dwarf any sort of near-term volatility for us,” Dhawan said in an interview. “We zoom out a little bit and take a look at the more fundamental parts of the Mexican story. Whilst there might be some volatility around elections, the fundamentals are still very good.”

Pimco, which is overweight on Mexico and sees the peso as attractive, is adding to the chorus on Wall Street that expects volatility in the currency as the votes approach.

Citigroup Inc. has also pointed out the likelihood of outsize reactions to the elections, while traders in the peso have boosted protection for exchange-rate volatility against the dollar for the period surrounding the US election in November.

But for the bulls, those swings are moments to pounce on the currency. The peso was the best-performing major currency in the world last year, according to data compiled by Bloomberg. And even as most emerging-market currencies slip this year, the peso continues to outperform peers.

Nearshoring — or the movement of global supply chains that has seen companies move physically closer to the US — provides a boost for the currency, said Dhawan. He said Mexico’s strong finances and still-high interest rates also offer support. The central bank is one of the last holdouts to monetary easing in Latin America.

Those tailwinds are likely to carry the peso toward long-term gains, regardless of short-term swings tied to elections, Dhawan said. Even so, some asset managers have begun to trim bullish bets on the Mexican peso in recent weeks, according to data from the Commodity Futures Trading Commission through Jan. 30.

The peso weakened 8.3% versus the dollar the day after Donald Trump was elected in 2016, but strengthened after Joe Biden’s victory in November 2020.

Mexico’s election, meanwhile, is broadly expected to favor Claudia Sheinbaum, who’s running under President Andres Manuel Lopez Obrador’s party. She’s leading the polls, and traders expect her to maintain most policies if elected.

The $1.5 billion Pimco Emerging Markets Local Currency and Bond Fund returned 9.1% over the past year, beating 98% of peers, according to data compiled by Bloomberg. Dhawan said he’s also overweight on countries like Brazil, Indonesia and India, as well as currencies from Hungary and Poland.

--With assistance from Davison Santana.

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