On Wednesday, August 21, American investment bank Morgan Stanley, commonly known as “Big Mo,” issued a “hold” warning for the Mexican stock market due to concerns about reforms in Mexico’s judicial and electoral system that may cause market turmoil. At the same time, Morgan Stanley also lowered its expectations for major stock markets in China.
Mexico is currently undergoing a controversial judicial reform aimed at establishing a new judicial system where all judges, including those in the Supreme Court, will be elected by the people. Morgan Stanley cautioned that this system could pose risks of synchronization between judicial and political cycles, hence the recommendation to “hold” Mexican stocks.
In a report, Morgan Stanley analysts wrote, “We have downgraded our rating on Mexican stocks to a hold.”
The report also stated, “These changes may increase uncertainty in the outlook for capital spending, especially in the case of near-shore manufacturing bottlenecks. This implies that investors face risks when relocating businesses from other countries to Mexico or expanding their operations in Mexico due to the aforementioned changes.
Additionally, targets for the Chinese stock market have been lowered to reflect the latest economic fundamentals, as well as “fund flows and positioning, market sentiment… and global geopolitical environment.”
Morgan Stanley set the new targets for June 2025 at 56 points for the MSCI China index, compared to the current 56.7 points on Wednesday; 17,000 points for the Hang Seng Index, which is currently at 17,391 points; and 3,500 points for the CSI 300 Index, now at 3,321 points.
The report highlighted, “Recently, especially since July, China’s macroeconomic growth, whether it be actual GDP or inflation/deflation levels, has started falling below target levels.” “Even with some additional policy easing measures that may lead to a modest rebound in economic growth in the fourth quarter, our economic team still believes that the full-year economic growth may still fall short of the 5% target.”