| NEW YORK, April 7
NEW YORK, April 7 Foreign exchange strategists
expect the Mexican peso to retreat over the next six months, but
many fund managers remain bullish, saying the currency is
Mexico's currency was the world's strongest in the weeks
following the inauguration of U.S. President Donald Trump -
whose anti-trade rhetoric initially hammered the peso - gaining
more than 17 percent.
Many investors are betting there is more to come from
Mexico's Trump rally, shrugging off forecasts by economists and
foreign exchange analysts polled by Reuters that the peso could
depreciate to 20 pesos per dollar by late September from its
current level of 18.77.
Kathleen Gaffney, co-director of diversified fixed income at
Eaton Vance, is increasingly confident that Trump will not
follow through on his protectionist campaign promises. She
expects the peso to surge by double digits over the next two
"Mexico benefits primarily from stronger global growth, and
the market beginning to factor in that there will be less impact
on U.S. trade with Mexico," Gaffney said. "Global trade is
picking up and Mexico is really part of the global manufacturing
The roughly $500 million Eaton Vance Multisector Income Fund
has about 4.5 percent of its assets in Mexican bonds,
with the position consisting mainly of 30-year peso-denominated
Mexican government debt.
Gaffney is not alone. All 15 portfolio managers interviewed
by Reuters in recent days said they view the peso as
undervalued, although just two said they have actually added to
their positions in recent months.
Jim Barrineau, portfolio manager and head of emerging
markets debt for Schroders, said the peso "is still grossly
undervalued" against the dollar even when taking into account
the inflation differential between the two countries.
He and other fund managers say Mexico's independent central
bank, strong financial institutions and the fact that its
economy still looks set to grow this year despite recent
struggles make Mexican assets attractive.
They also cite the Trump administration's recently more
conciliatory tone toward the country amid struggles to enact
other parts of its agenda, like health care and tax reform.
Robert H. Neithart, a fixed-income portfolio manager at
Capital Group who oversees approximately $79 billion of assets,
said he has gradually increased his Mexican asset exposure based
on the "combination of valuation and seemingly less-hostile
trade talks" with the United States.
But not all Mexican assets are fairly priced, cautions T.
Rowe Price's Verena Wachnitz, who manages $1.2 billion and
oversees the firm's Latin America equity fund. While the peso
seems cheap, valuations for Mexican stocks are not.
After the U.S. election, "what happened is that the currency
sold off quickly and sharply but stock prices had only a modest
negative reaction, and still looked expensive on average despite
increased uncertainty," Wachnitz said.
Similarly, Patricia Ribeiro, emerging markets equity
portfolio manager at American Century Investments, with $1.5
billion under management, has been reducing her holdings of
Mexican stocks over the past six months, citing lingering
concern about U.S.-Mexico ties and the country's domestic growth
"Because we are seeing a deceleration in GDP, interest rates
going up, inflation picking up, it's harder to find stocks," she
Still, hedge funds and other speculators have been betting
the peso has more room to run. Long speculative contracts on the
currency reached the highest level since September 2014 last
week, according to the Commodity Futures Trading Commission.
Some portfolio managers are banking on the peso's relative
cheapness as an opportunity to invest in Mexican hotel operators
and Mexican airport holding companies. Others favor
Mexican cement maker Cemex, as well as debt issued
by auto parts suppliers like Nemak.
Jamie Anderson, managing principal of Tierra Funds, said
Mexico has been the prime contributor to the 21 percent gain in
its XP Latin America Real Estate ETF this year. He
believes the peso could gain "easily another 5 percent."
"Underneath all of this is the Mexican consumer, and at the
core this is a Mexican consumer growth story and that makes it a
very attractive destination," Anderson said.
"I had a hunch that the (recovery in) the Mexican peso was
going to be fairly swift and unrelenting when it did kick into
high gear. The question now is, how much further can it really
(Additional reporting by Sam Forgione; Editing by Christian
Plumb and Dan Grebler)