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Liquid Insight Trump’s effect on MXN
Key takeaways
¢ We provide an empirical analysis of Donald Trump's potential effects on the Mexican peso
¢ Our analysis suggests the exchange rate is perhaps as much as 15% undervalued
« We remain neutral for now given US election risks are likely to remain high in the near term
By Claudio Irigoyen and Ezequiel Aguirre
Chart of the day: MXN may be as much as 15% undervalued
ND oO ee) a)
+ 2. 2. S + a cs cs s
x
ao a
NOE Ann OO NOE ADs OO
2014 2015 2016 Model (with Trump) = VX
Model (without Trump)
Source: BofA Merrill Lynch Global Research, Bloomberg
Trump’s effect on MXN
We provide an empirical analysis of Donald Trump’s effects on the Mexican peso. Our analysis suggests the exchange rate is perhaps as much as 15% undervalued. In our view, buying the Mexican peso likely would prove a profitable strategy if Hillary Clinton wins. However, we remain neutral for now given US election risks are likely to remain high in the near term.
A model of MXN weekly returns including Trump
We estimate a model of MXN returns with standard financial fundamentals that also includes Donald Trump’s RealClearPolitics polling average in the US presidential election. It is generally accepted now that Trump’s chances in the US election have been a major driver of the Mexican peso (Chart 1).
Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies.
BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Refer to important disclosures on page 6 to 7. Analyst Certification on page 5. 11668923
Timestamp: 22 September 2016 12:30AM EDT
Bankof America Merrill Lynch
22 September 2016
Rates and Currencies Research Global
Global Rates & Currencies Research MLI (UK)
Claudio lrigoyen
LatAm FI/FX Strategy/Economist MLPF&S
+1 646 855 1734 claudio.irigoyen@baml.com
Ezequiel Aguirre
LatAm FI/FX Strategist MLPF&S
+1 646 855 9689 ezequiel.aguirre@baml.com
Adarsh Sinha
FX Strategist
Merrill Lynch (Hong Kong) +852 3508 7155 adarsh.sinha@baml.com
Yang Chen
Rates Strategist
Merrill Lynch (Hong Kong) +852 3508 8695 ychen8@baml.com
See Team Page for Full List of Contributors
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