Mexico’s peso tumbles against the dollar after Claudia Sheinbaum’s election victory amid fears America’s neighbor will be plunged into left-wing dictatorship

Mexico’s newly elected and first female president, Claudia Sheinbaum, faced a market crisis just hours after being elected as shares and the value of the peso fell.

Stock prices fell nearly 6 percent and the peso lost as much as 4 percent in the hours after Sheinbaum won a landslide victory in Sunday’s presidential election.

The size of the gains for the Morena party and its allies surprised markets, with some fearing the results would pave the way for the ruling coalition to implement constitutional reforms without opposition support.

The Mexican peso earlier hit a new seven-week low of 17.7207 against the dollar, down more than 4.1 percent, LSEG data showed. At 1:30 PM EDT, the peso was trading at 17.64 against the dollar, down 3.7 percent.

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

Mexico’s newly elected and first female president, Claudia Sheinbaum, faced a market crisis hours after her election

The Mexican peso hit a seven-week low of 17.7207 against the dollar earlier Monday after her election, down more than 4.1 percent.

The latest losses have weakened the peso by more than 3 percent since the start of 2024, a sharp turnaround for the currency, which until recently was one of the few in emerging markets to gain ground against a strong dollar this year.

Mexico’s benchmark index fell 5.9 percent, while the MSCI index, priced in dollars, fell 10 percent. The iShares MSCI Mexico ETF fell 9.4 percent.

“The key challenge for President-elect Claudia Sheinbaum will be to strengthen market sentiment and provide a predictable and investment-friendly policy and regulatory framework,” Alberto Ramos, head of Latin America economic research at Goldman Sachs, said in a client note.

“Ultimately, the new administration will be challenged not to encroach on private sector activities and the free market, and to prevent further erosion of institutional quality.”

The Morena party that López Obrador founded, and in which he remains personally much more popular than Sheinbaum, appeared on track to win the two-thirds majority needed to amend the constitution.

López Obrador has already outlined 20 constitutional amendments he wants to propose, including the elimination of independent oversight bodies and tighter restrictions on private investment, worrying foreign investors.

López Obrador has already cracked down on private and foreign investment in the energy sector and now wants to ban new industrial sites in any part of Mexico suffering from water scarcity – essentially the entire economically vibrant north of the country.

But other political provisions also cause concern and divide Mexicans.

The size of the gains for the Morena party and its allies surprised the markets. Crowds of flag-waving supporters celebrated Sheinbaum’s victory (photo)

Foreign investors are concerned that lame duck President Andres Manuel Lopez Obrador will implement constitutional changes that place stricter limits on private investment

“The climate of political polarization has worsened under the current administration,” Alfredo Coutiño, director of Moody’s Analytics, wrote in a report on Monday.

“The country is significantly divided and will need the political leadership of the new president to restore national unity.”

President Joe Biden congratulated Mexico’s new left-wing president as he anticipates a new chapter in U.S.-Mexico relations in which the border crisis is sure to cause friction.

“I just spoke with Claudia Sheinbaum to congratulate her on her historic election as Mexico’s first female president,” Biden said on X.

“I look forward to working with the President-elect in a spirit of partnership and friendship – advancing the values ​​and interests of both our nations for the benefit of our people.”

Biden will sign a new executive order on Tuesday banning migrants who cross the border illegally from seeking asylum, The Wall Street Journal reported.

Sheinbaum, a scientist by training, won about 58-60 percent of the vote, according to preliminary official results from the National Electoral Institute.

She has pledged to continue López Obrador’s populist policies, including a universal pension for the elderly and a program that pays young people to apprentice.

The persistently high level of violence in Mexico will be one of her most immediate challenges after she takes office on October 1.

During her campaign, she said little more than that she would expand the quasi-military National Guard created by López Obrador and continue his strategy of targeting the social problems that make so many young Mexicans easy targets for cartel recruitment.

“Let’s be clear: It does not mean an iron fist, war or authoritarianism,” Sheinbaum said of her approach to criminal gangs at her latest campaign event.

“We will promote a strategy to address the causes and continue the pursuit of zero impunity.”

The scientist has also pledged to expand welfare programs, even though Mexico faces a large budget deficit this year and the central bank expects slow GDP growth of just 1.5% next year.