Investment bank Morgan Stanley issued a warning on Wednesday, downgrading its assessment of Mexican stocks to “underweight” due to concerns over planned changes to Mexico’s judiciary and electoral systems. The bank also trimmed its forecasts for China’s main markets.
The effective “sell” recommendation on Mexico comes as outgoing President Andres Manuel Lopez Obrador seeks to implement constitutional reforms with the help of his soon-to-be successor, Claudia Sheinbaum. One of the most contentious reforms is a plan to elect judges, including Supreme Court magistrates, by popular vote. Morgan Stanley and other analysts warn that this could create risks by syncing the judiciary with the political cycle.
“We have downgraded Mexican equities to an underweight stance due to concerns over these changes,” said the bank’s analysts in a note. They also cited uncertainty about capital expenditure outlooks, particularly in light of bottlenecks in near-shoring capacity.
Morgan Stanley also lowered its equity market targets for China, reflecting the latest economic fundamentals, as well as fund flows, market sentiment, and global geopolitical factors. The new targets for June 2025 are:
MSCI China: 56 points (down from 56.7)
Hang Seng: 17,000 points (down from 17,391)
CSI300: 3,500 points (down from 3,321)
There is some good news on future earnings being priced into the market currently. However, Morgan Stanley’s report noted that China’s macroeconomic growth has been trending below target since July, with full-year growth potentially missing the 5% target despite additional policy easing.
Source: Reuters
