Morgan Stanley Cuts Mexico Stocks in ‘Unprecedented’ Moment

(Bloomberg) -- Morgan Stanley ditched its positive view on Mexican stocks following the election of Claudia Sheinbaum, the incoming leftist leader who is expected to take office with stronger-than-expected legislative support.

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“Mexico finds itself in an unprecedented situation and we are in wait-and-see mode on key backstops,” strategists led by Nikolaj Lippmann wrote in a note Tuesday, downgrading the country’s equities to an equal-weight recommendation within their Latin America portfolio.

The country’s stocks plunged more than 6% on Monday, the worst session since the onset of the pandemic in early 2020, as investors fear Sheinbaum, the protege of President Andres Manuel Lopez Obrador, may have congressional support to pass measures seen as negative for the market. The benchmark Mexbol index trimmed some losses on Tuesday.

The Wall Street bank, which had been holding an overweight recommendation for Mexico since late 2022, trimmed exposure to names tied to the country’s investment cycle such as cement maker Cemex SAB de CV and industrial property-focused real estate investment trust Prologis Property Mexico SA de CV.

“We are reducing risk in the country due to lack of visibility on nearshoring,” strategists wrote, adding that they’re now favoring names that benefit from a weaker peso and get a “substantial portion” of their revenues outside of Mexico.

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