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 Business News | June 2006 
Peso to Rise by Five Percent After Election, Says Barclays
 Wire services - El Universal
| | To profit from a rise in the peso, Barclays is recommending investors buy and sell currency options in a strategy that makes money should be the peso be between 10.50 and 11.30 pesos to the U.S. dollar six months from now. |
The peso may strengthen as much as 5 percent against the dollar six months after the July 2 presidential election as economic policy probably won´t change regardless of who wins, Barclays Capital said in a report today.
Opposition candidate Andrés Manuel López Obrador wouldn´t have congressional support to change economic policy and probably won´t seek to finance increased spending with a budget deficit, as some investors fear, said Gautam Jain, one of the three authors of the report.
"Right now, the political risk that is priced in is too high," Jain said in an interview from New York. "Congress will be divided and no president will be able to make any drastic changes in policy."
Barclays´s view contrasts with that of Citigroup Inc.´s unit in Mexico, which forecasts a decline in the peso should López Obrador be elected. The peso would weaken to as much as 11.75 pesos to the U.S. dollar because the spending López Obrador plans would create a fiscal deficit of about 1 percent of gross domestic product and fuel inflation, Citigroup´s Banamex unit said in a June 14 report. Mexico targets a balanced budget this year.
The peso has lost 6.7 percent against the dollar this year, the third-worst performance among 16 primary currencies tracked by Bloomberg. On Wednesday the currency rose 0.3 percent to 11.4050 pesos to the U.S. dollar.
López Obrador´s main rival is Felipe Calderón of President Vicente Fox´s National Action Party. López Obrador, who was Mexico City mayor from December 2000 to July 2005, belongs to the Party of Democratic Revolution.
To profit from a rise in the peso, Barclays is recommending investors buy and sell currency options in a strategy that makes money should be the peso be between 10.50 and 11.30 pesos to the U.S. dollar six months from now. The profit can be as many as six times as large as the investment if the peso is at 10.90 pesos within six months.
Investors should buy a "call" option that gives them the right to buy the peso at 11.30 to the dollar six months from now, according to Barclays. At the same time, investors should sell two "call" options that would allow their counterparty to buy the peso at 10.90 to the U.S. dollar, Barclays said.
López Obrador, who promises to boost spending by 80 billion pesos a year to aid the poor, will close his presidential campaign today with a rally in the colonial center of Mexico City.
Calderón, a former energy secretary under Fox, will end his campaign in Guadalajara, the nation´s second-biggest city. Calderon vows to create jobs and boost growth by stimulating investment and attracting foreign capital to industries such as energy. |
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