Mexico without NAFTA

Amid heightened concern over the collapse of the North American Free Trade Agreement, here is a snapshot of the possible impact on Latin America’s second-largest economy.

October 27, 2017

Uncertainty over the outcome of NAFTA negotiations has resurfaced, raising concerns over the prospect of a geopolitical shock.

Discussions between Mexico, Canada and the United States have now been extended to the first quarter 2018, with significant distance remaining in their respective positions. President Trump has stated his willingness to “terminate” the treaty and elections in the U.S. and Mexico next year will add to investor anxiety. Already, concerns are weighing on asset classes in Mexico, a major energy producer and the world’s fourth largest auto exporter.

J.P. Morgan maintains the view that negotiations will likely be successful, with regional benefits in areas such as ecommerce outweighing nationalist impulses. However the current climate requires a closer examination of the adverse scenario and its possible impact on Mexico.


Projected impact of NAFTA collapse

40-70 bp increase

GDP Potential
1.8 – 2.1%

(from current estimate of 2.5%)

20.5 – 22

(from current estimate of 18)


Pemex Bonds

Outflow in the following categories

  • Highly liquid companies, such as AMX and Walmex
  • Companies exposed to a slowdown in domestic consumption
  • Companies sensitive to the USD, with strong links to the United States through trade or investment

Pemex bonds

The state energy company remains an attractive opportunity as operations would be unaffected:

  • Oil and gas industry not included in the current NAFTA agreement
  • As a dollarized company, Pemex would benefit from a weak peso

A senior analyst involved in the preparation of the content of this report has a household member who is a senior portfolio manager of and investor in certain emerging markets mutual funds, which may invest in instruments discussed in this report.

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