Investors scrambling to find returns this year amid record lows for fixed-income assets have been heading south of the border.
According to a research note from Barings Asset Management, Mexican bond market offers the best-return potential in the emerging markets bond space.
"Mexican bonds stand to benefit from a growing economy with a currency that is now the cheapest it has been for nearly two decades, making capital appreciation likely," Christopher Mahon, Director of Asset Allocation Research at Barings said in the note.
The Mexican peso has been under-performing other emerging markets ever since the Republican presidential candidate Donald Trump started to talk about deportations, ditching trade deals and having Mexico to pay for a border wall.
"Donald Trump as U.S. President could be bad news for Mexico. Reasons include his plan to tax remittance payments to Mexico, and the potential withdrawal from The North American Free Trade Agreement. While it is far from given that Trump will win the White House, or be able to control Congress enough to implement his policies, his candidacy remains a risk for the peso," Mahon said.
A number of other emerging economies are dependent on a host of external factors such as the Chinese slowdown, monetary policy decisions from the U.S. Federal Reserve and commodity prices among others.
The report cited Brazil in the grip of a multi-year recession, South Africa struggling with low commodity prices, and Russia recovering from the collapse in the oil price.
But Mexico is different, Mahon explained. Tthe Mexican growth story is dependent on the U.S. economy, rather than China or Asia for its growth and this reliance gives Mexico a far stronger foundation than countries depending on China for their export growth.
"While some quarters are weaker than others, the economy has been expanding over the last six years. At under 3 percent, inflation is well-anchored. Supported by record remittances from overseas workers, the Mexican consumer is in rude health, with retail sales growing at 8 percent a year. Mexico is growing comfortably."
However, analysts at UBS Global Research have said the weakness in Mexican peso is starting to come under spotlight again highlighting the challenges in the economy.
In a note, the UBS analysts said that the Mexican peso is not just troubled by its liquid nature and the hedging it provides for wider EM positioning, but also a slippage in fundamentals. These they explained are marked by factors such as a widening current account deficit, falling portfolio inflows and a deteriorating fiscal position.
"In addition to this list, the market is also now focused on the risk that the U.S. elections will result in a greater degree of trade protectionism that would directly impact Mexico," the UBS research note said.