Money Traders Betting on López Obrador

By Manuel Roig-Franzia
Washington Post Foreign Service
Saturday, July 1, 2006

MEXICO CITY, June 30 -- Investors are betting that Andrés Manuel López Obrador will be the next president of Mexico.

As Sunday's election approaches, the price of Mexican bonds has been going down because of fears that López Obrador will win the race and then mismanage the national economy. And the traders on a Web site that sells futures contracts about election outcomes are bullish about a victory for the populist former Mexico City mayor.

Bond traders are worried that López Obrador, who has promised massive infrastructure projects that rely heavily on government financing, has focused too much on spending and not enough on attracting investment, said Salvador Moreno, chief economist for ING Group's Mexico division. Prices of Mexican bonds have slipped about 13 percent since March, he said.

"We think López Obrador is going to win, and he's been talking about all these big projects, and that we don't like," Moreno said.

The markets are not certain indicators of election outcomes. But all of this could be bad news for López Obrador's main opponents, Felipe Calderón and Roberto Madrazo, said John Delaney, chief executive of the online futures exchange Intrade.com. Delaney, whose company has traded more than $2 billion in futures contracts since 2001, said his clients predicted the outcome in 49 of 50 states in the U.S. presidential election in 2004.

"Ninety percent of the time the markets are better predictors than the polls," Delaney said in a telephone interview from his company's office in Ireland. "You put your money where your mouth is."

The bond ratings services are showing less concern. Moody's has said a victory by any of the three major candidates would not prompt the firm to lower Mexico's bond rating. Still, Moody's analyst Laura Barrientos has said she expects a slowdown in the Mexican bond market if López Obrador is elected. And Barclay's Capital has said the market for Mexican bonds is "pessimistic" because it anticipates a López Obrador victory, though the firm's analysts say his record as Mexico City mayor is not "worrisome."

The polls are far from certain about the final tally. López Obrador, of the Democratic Revolutionary Party, holds a slight lead over Calderón, of the National Action Party, in most polls. But López Obrador's lead in many polls is within the margin of error. Madrazo, of the Institutional Revolutionary Party, is third in most polls, but a few show him in the final weeks close to overtaking Calderón.

Hundreds of millions are spent on Mexican bonds. Delaney's exchange handles only a fraction of that amount -- in the neighborhood of $150,000 in futures contracts on the Mexican presidential election. But, unlike the bond market, where the reasons for ups and downs are open to interpretation, Intrade investors are making direct bets on the outcome of the election.

The higher the price of the contract, the better chance the traders give the candidate of winning. Contracts for a López Obrador win were going for around $30 at the beginning of June, Delaney said, but they had soared to $59 by Friday afternoon. A Calderón contract could be had for $40, and Madrazo contracts were available at $7.

Although Delaney said his investors have a stellar record in elections, Calder?n and Madrazo might take comfort from the online traders' forays into Hollywood. The day after "Crash" won the Academy Award for best picture, more than a few people noted that much of the Intrade investors, as well as investors at other sites, had been putting the bulk of their money on "Brokeback Mountain."


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