The World’s No. 1 Carry Trade Is Fueled by AMLO’s Peso Obsession
- Betting on Mexican peso, rates has returned 16% under AMLO
- Rise in foreign holdings of local bonds signals popularity
In many ways, Mexican President Andres Manuel Lopez Obrador has been just about as toxic for investors as his detractors warned he would be. Stocks have badly underperformed during his 14-month tenure, the state-owned oil company had its credit rating cut to junk and economic growth is stagnant at best.
But there’s one corner of the market where the leftist leader has proven to be a staunch ally of investors, handing them a windfall that few anticipated: the carry trade. Investors following the typical strategy of borrowing cheaply in dollars and then plowing the proceeds into short-term peso notes have notched returns of 16% since the president’s inauguration in December 2018, far and away the best performance among major currencies. (The Canadian dollar is No. 2, with a mere 1% return in that span.) Lured by both the stability of the peso and Mexico’s high interest rates, investors keep piling in to the trade. Bullish positions on the peso are now near a record.