MEXICO CITY, Oct 8 (Reuters) – Mexico is poised to lose its coveted investment-grade rating during the remainder of the government of leftist President Andres Manuel Lopez Obrador, an investor note published by Credit Suisse predicted.
About 74% of investors said in the non-public note seen by Reuters that Mexico would likely follow national oil company Petroleos Mexicanos in having its debt downgraded to speculative grade, or junk.
Latin America’s second-largest economy is facing the deepest recession in decades.
Losing the rating that Mexico held for almost two decades would be a bitter blow for Lopez Obrador, whose conservative approach to finance and debt is guided by memories of Mexico’s payments crises and bailouts in the 1980s and 1990s.
All three ratings agencies have already downgraded Mexico this year.
Most of the 82 investors surveyed by Credit Suisse were also skeptical of the 2021 budget: 63% deemed a 4.6% forecast for economic growth not credible and 78% expressed the same view about the 1.86 million barrel-per-day assumption for oil output. Another 59% considered the fiscal stance overly conservative.
Meanwhile, the overwhelming majority also said Lopez Obrador is doing less than his Latin American peers to avert the impact from the coronavirus pandemic on the economy – and that it will take several years for Mexico to recover.
Even so, some investors are seeing a silver lining: 45% considered it a good moment to add long risk positions in Mexican local government bonds, 29% said the same for Mexican equities and 37% for the peso. Another 51% expect the stock market to rise in peso terms.
The Mexican finance ministry did not immediately respond to a request for comment. However Deputy Finance Minister Gabriel Yorio told Reuters in a recent interview that the ministry was concerned about the possibility of further downgrades.
He has also defended the government’s strict fiscal discipline in the budget amid calls for more borrowing.
Reporting by Stefanie Eschenbacher Editing by Frank Jack Daniel and Lisa Shumaker
Our Standards: The Thomson Reuters Trust Principles.
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