Most retail investors won’t see the impact of a volatile peso on their investments, but it could impact the way some global fund managers operate.
For instance, a manager of a global fund that invests in developed-market treasuries would normally use the peso proxy to express concerns about emerging markets. Rather than trade in and out of various countries, they may just buy or sell peso-denominated treasuries, or go long or short on the peso, based on their view, says Stanners. It’s becomes harder to do that if the peso is now more correlated to what Trump is saying.
In some ways, though, the growing peso-Trump bond is making it easier for investors who have identified opportunities in Mexico, as companies are now moving based on what’s happening within the country versus on a reaction to emerging market issues overall.
“The reverse of what some may be thinking is that Mexico has now started to trade more in isolation,” says Stanners. “So if you looking at a company in Mexico to trade, whether it’s on the equity or bond side, you’re now able to do that.”
The peso will likely experience more volatility over the next several months, at least until there’s more clarity around trade and immigration, says Stanners. At this point, if Trump take a hard line against trade, the peso could fall further. If he takes a softer stance it may rise. With all of that uncertainty, investors must be careful about trading on headlines, adds Taub.
“The peso is still very much affected by his comments,” she says. “It’s going to be volatile, and investors do need to have a more of a long-term view. If you trade around every news announcement, you’ll go crazy.”
— By Bryan Borzykowski, special to CNBC.com
