EMTA Special Seminar: Mexico: The Trump Effect (NYC) - Feb. 13

EMTA SPECIAL SEMINAR: MEXICO: THE TRUMP EFFECT
Monday, February 13, 2017

Hosted by

One Bryant Park, 2nd Floor Auditorium
(42nd St. and 6th Ave.)
New York City

2:30 p.m. Registration

3:00 p.m. Global Trade in the Trump Era

David Woo (Bank of America Merrill Lynch)

3:30 p.m. Panel Discussion

Carlos Capistran (Bank of America Merrill Lynch) – Moderator
Pablo Goldberg (BlackRock)
Kathryn Rooney Vera (Bulltick Capital Markets)
Matias Silvani (GoldenTree Asset Management)
Alberto Ramos (Goldman Sachs)

5:00 p.m. Cocktail Reception

Additional support provided by Bulltick Capital and Goldman Sachs

Registration fee for EMTA Members: US$95 / US$695 for non-members.

We regret that this event is not open to the media.

Cancellation policy: Cancellations must be received by 3:30 p.m. (EST), Friday, February 10, 2017, or you will be charged the full amount. Substitute delegates may be sent at no extra charge. Please contact Evelyn Ramirez at eramirez@emta.org.

EMTA Panel Debates the Trump Effect on Mexico

Speakers addressed the effects the new US administration might have on EM at a Special Seminar held by EMTA on February 13, 2017. Bank of America Merrill Lynch hosted the event at its midtown Manhattan headquarters. 190 market participants attended.

David Woo of Bank of America Merrill Lynch began the session by discussing his expectations for the Trump administration, its priorities, and how new policies will impact EM countries. Woo discussed what he described as a “new pessimism” by the market towards the Trump administration’s policies to restore growth. Some investors believed that Trump’s fiscal stimulus plan could be delayed if the new government focuses on its healthcare plans, or by its own debate on a Border Adjustment Tax (BAT). In addition, fears of trade wars leading to tariffs and higher prices were also taking hold.

In Woo’s view, these concerns might be overstated. He believed that the GOP will dodge the Obamacare debate by proposing a bill that will be filibustered, but which allows political cover. Meanwhile, the bold statements made earlier regarding China and Mexico have been tempered (such as a retreat from appearing to question the “One China” policy).

Woo described existing US corporate tax policy as “a dinosaur,” in need of revision, and which encourages both corporate inversions and overseas profits being held abroad to avoid taxation. In Woo’s view, corporate tax reform was likely to happen in the near future.

He sketched out four scenarios for the BAT, and discussed the likely impact on US inflation in each case. Market consensus was for the current BAT plan to be implemented with no offset-ting appreciation in the US dollar, leading to higher costs for imports and rising US inflation. However, in Woo’s other 3 scenarios, the US dollar would appreciate, and EM FX would fall.

Woo concluded by stating that a BAT plan could be announced as early as February 28. He be-lieved the recent pessimism toward Trump economic policy could be dispelled, and a Fed hike in March was possible.

Carlos Capistran (Bank of America Merrill Lynch) moderated the event’s panel, which focused on the prospects for Mexico. Capistran began the session by asking each panelist to first dis-cuss where they saw value in Mexican assets.

At current market prices and given lingering uncertainties from US trade policy, Pablo Goldberg (Blackrock) saw the cheapest expression in Mexican risk as via Pemex. Kathryn Rooney Vera (Bulltick Capital) viewed M-Bonos and the battered MXN as having upside potential (“too much pessimism has been baked into the MXN at current levels”). Mathias Silvani of GoldenTree As-set Management combined the two previous recommendations, favoring MXN-denominated Pemex bonds, while noting the MXN may no longer be as attractive as it was when it was at 22/USD. Finally, Goldman Sachs’ Alberto Ramos expressed caution; “the MXN could be a fall-ing knife. It’s cheap, but it could become cheaper.”

Capistran turned the panel towards Mexican interest rates. “Banxico is not done with its rate hikes; and I’m not sure they can cut in 2018 because of the uncertainty that may be generated by the presidential election,” stated Ramos, predicting Mexican rates could reach 7 to 7.25% by year-end as the Central Bank tried to keep pace with its US counterpart. Silvani highlighted Mexico’s uniqueness in being a country with rising real interest rates. He ventured that market forecasts of 100 bps in hikes this year were too hawkish, and saw room to slow the hiking cycle should US policy under President Trump prove to be more benign than feared.
Rooney Vera seconded Silvani’s call for lower-than-expected Mexican rate hikes. Finally, Gold-berg observed that, “it’s easy to criticize Banxico for moving too early, but they need to be on top of their game.” He expressed surprise that Mexico continued to grow at its current pace, and didn’t rule out a potential recession.

Speakers concurred that there would be some form of renegotiation of the NAFTA Treaty. Ra-mos expressed optimism that, “in the end rationality will prevail, and Mexico will remain a natural hub for the production of some manufacturing goods [for the US].” Goldberg added that a re-quirement for NAFTA products to have NAFTA materials could help address the US trade deficit with China. “The US needs Mexico as a partner,” he stressed. Goldberg concluded that it was likely that the fine print on NAFTA would be changed, “but not to the extent that Mexico will feel a trade shock.” Concurring, Silvani called Mexico the biggest loser when China joined the WTO. “The treaty needs to be updated, but not rewritten from scratch,” in his view.

Panelists generally agreed that a downgrade of Mexico’s credit rating was possible, while seeing it as already priced-in, or a non-event. Only if Mexico were to lose its investment-grade rating would the market react, “but we are so far away from that,” Ramos stated.

Rooney Vera was among those who argued that the mass return of manufacturing jobs to the US was a myth. “Those jobs won’t be returning; they will be automated and robot-ized…globalization can be decelerated, but it cannot be stopped; and [a destruction of trade flows] would harm both countries as we are now so intertwined.” She also noted that support for Mexican opposition candidate Andres Manuel Lopez Obrador would rise the more US President Trump is perceived to be attacking Mexico.

Capistran closed the panel by asking speakers to address Mexico’s greatest strengths. Rooney Vera identified Mexico’s competitive advantages on labor costs. Ramos stressed its geographic proximity to the largest consumer market in the world. As for the country’s biggest weaknesses, Silvani cited low productivity growth (seconded by Ramos).