Less than one month before AMLO’s inauguration and investors are already fleeing Mexico

According to BLOOMBERGAndres Manuel Lopez Obrador’s honeymoon with investors came to a screeching halt less than 30 days before he’s due to assume the Mexican presidency.

His decision to rip up a $13 billion airport project when he takes office in December sent markets into a tailspin. The peso sank 3.5 percent and pierced 20 per dollar, the stock market lost more than $17 billion in value and JPMorgan Chase & Co. slashed its 2019 economic growth forecast, saying the central bank will now likely have to raise interest rates to slow capital flight.

Construction at the New International Airport of Mexico City (NAICM) in Texcoco, in April 2018. Photographer: Brett Gundlock/Bloomberg

It’s not so much that investors loved the airport project. It was far from perfect. The problem, though, is that calling for its termination — just one day after a haphazard referendum indicated a majority of Mexicans disapproved of the project — sent a broader message to investors: Existing contracts can be pulled at a moment’s notice. It’s the airport construction today and, perhaps, oil contracts tomorrow and mining the next day. For an investor community that was always leery of AMLO, as the leftist is known, it’s an unnerving message.

The referendum “sends a grave message of uncertainty to international markets, to investors and to all Mexican citizens,” Juan Pablo Castanon, the national business chamber head whose handshake with Lopez Obrador in July helped to calm markets, said at a news conference Monday. “It’s a breach of the commitments of the Mexican state and a breaking of the current legal framework.”

While Lopez Obrador made canceling the airport one of his campaign promises, Mexican assets rallied following his election as he met with businessmen and pledged an orderly transition. The calm was shattered by Monday’s decision. It sent the nation’s currency, stocks and bonds to their worst sell-offs since the surprise election of Donald Trump in 2016 raised the specter of Mexico being forced to pay for a border wall and the end of the North American Free Trade Agreement. Eurasia Group said the result shows that the influence of more market-friendly advisers like chief of staff Alfonso Romo, who had been the incoming leader’s top envoy for courting investors, will be limited.

Read more: Mexico’s AMLO Scraps Airport, Puncturing Investor Confidence

Lopez Obrador said the decision on the most important infrastructure project in decades was taken by the Mexican people, but the vote — organized and administered by his Morena party — had the participation of just 1.07 million voters, compared with more than 45 million in July’s presidential election. It was rife with accusations of ballot stuffing, with videos on social media showing people, including apparent volunteers at polling stations, voting multiple times.

The process was also tainted by the perception that Lopez Obrador himself favored his proposed alternative, the conversion of a military base at Santa Lucia, and that the referendum question was designed to tip the scales toward that outcome…