(Bloomberg) -- Investors in Mexico's beaten-down equity market got some more relief Wednesday as escalating trade tension between the world's two largest economies took the spotlight off of U.S. President Donald Trump's protectionist stance toward his country's southern neighbor.
Mexican stocks jumped 1.7 percent, bucking losses in other global equity markets sparked by fear that tensions could escalate between the U.S. and China. The benchmark IPC Index has gained 3.6 percent in the past two days, the biggest gain since January 2017.
“If Trump is getting into a trade war with China then the heat will be off Mexico in the near term,” said Dirk Schnitker, head of Latin American equities at New-York based brokerage firm Auerbach Grayson. “The way I see it, Nafta negotiations are less intense because the U.S. needs Canada and Mexico more” if it becomes embroiled in a “full-on trade war” with China, he said.
Trump has threatened to step back from the North American Free Trade Agreement as his administration focuses on reducing the U.S. trade deficit, a possibility that has weighed on Mexican stocks on concern a protectionist U.S. would hit Mexico's economy and company profits.
But this week Trump took aim at China's plans to dominate strategic technologies, slapping tariffs on 1,333 of the country's products -- from semiconductors to lithium batteries, on Tuesday. Chinese President Xi Jinping's government hit back with proposed levies on key American imports including soybeans and Boeing Co. jets, a tougher response than many expected.
Mexican stocks have also been bolstered by reports that the Trump administration may announce a preliminary Nafta deal next week, which would remove some of the uncertainty that's weighed on the market.
To contact the reporter on this story: Michelle F. Davis in Mexico City at mdavis194@bloomberg.net.
To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Richard Richtmyer
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