Morgan Stanley Investment Management is putting Mexico back at the center of the emerging markets map, while the manager's thesis extends beyond the simple nearshoring narrative. In a note published by its emerging equities team, the bank argues that while proximity to the US remains a structural advantage, the country's potential now hinges more on Claudia Sheinbaum's ability to revive domestic growth and private investment.
Despite Donald Trump's tariff threats, a hardening of US rhetoric regarding the border, and the designation of Mexican cartels as foreign terrorist organizations, Mexico's foreign trade has continued to gain ground. Exports to the US reached a record $535bn in 2025, following a $150bn surge in manufacturing exports since 2021. Electronics has emerged as the most dynamic segment, partially offsetting weakness in the automotive sector and confirming Mexico's deep integration into American supply chains.
In this context, the next major milestone will be the renegotiation of the United States-Mexico-Canada Agreement (USMCA), scheduled for July 2026. Discussions are expected to focus on rules of origin, tariff alignment, and critical minerals. A clarification of the trade framework could unlock a portion of deferred projects, even as issues related to local content, labor rights, and energy policy remain sensitive.
For Morgan Stanley, however, the primary headwind is domestic, as the Mexican economy stagnated in 2025 and investment retreated by 8%. This weakness occurs against a backdrop of a fiscal deficit at 5% of GDP - the highest in 40 years - and institutional reforms initiated under Andrés Manuel López Obrador. Changes to the judicial system, in particular, have revived concerns over court independence, contract enforcement, and the protection of property rights.
With her "Plan Mexico," Claudia Sheinbaum is attempting to shift this trajectory by raising investment to 28% of GDP, up from 22% in 2025, through public-private partnerships, targeted infrastructure, and the creation of 1.5 million formal jobs. Morgan Stanley views the plan primarily as a favorable political signal to private investment. This aims to remove long-standing bottlenecks in energy and infrastructure, two essential conditions for moving up the manufacturing value chain and improving productivity.
The outcome will therefore depend on Sheinbaum's ability - still bolstered by approval ratings near 70% according to Morgan Stanley - to pivot more decisively away from her predecessor's approach and advance supply-side reforms. Should this agenda materialize, Mexico could evolve from being merely the United States' top trading partner into a genuine domestic growth story within emerging markets.
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