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Just four months ago, investors in M茅xico were bracing for disaster. Trade agreements were sure to be ripped up. Thousands of jobless Mexicans, expelled from their American homes, would flood back across the border. And the peso? Analysts could hardly cut their forecasts fast enough.

Turns out, life in the era of Donald Trump hasn鈥檛 been that bad so far.

Mexico鈥檚 benchmark equity index has erased the losses triggered by Trump鈥檚 win in November and is actually up 7 percent this year. The peso, the world鈥檚 biggest loser in 2016, is now staging a surprise rally that puts it atop the emerging-market heap. Investors including Discovery Americas say they鈥檙e investing in Mexico again after putting purchases on hold at the start of the year.

In explaining the about-face, executives and bankers point out that U.S. officials have softened their tone quite a bit since Trump鈥檚 Mexico-bashing days on the campaign trail. U.S. Treasury Secretary Steven Mnuchin says negotiations to renegotiate the North American Free Trade Agreement could spell a win-win for both sides. Commerce Secretary Wilbur Ross says he anticipates a sensible deal. And Peter Navarro, who leads the White House National Trade Council, said he wants Canada, M茅xico and the U.S. to become a global manufacturing powerhouse. Some of Trump鈥檚 early stumbles, such as the collapse of the health-care bill, have also underscored how hard it is to make any drastic changes in Washington.

It doesn鈥檛 seem like the catastrophic scenario we were all envisioning was going to happen,鈥� Raul Martinez-Ostos, chief executive officer of Barclays Plc in Mexico, said in an interview at a conference in Acapulco. 鈥淭here鈥檚 clarity that people are going to sit down at a table and discuss the bilateral relationship in a way that鈥檚 beneficial for everyone involved.

As Trump also scales back the Twitter attacks on the U.S.鈥檚 third-biggest trading partner, investors are again turning their attention to Mexico鈥檚 economic indicators, which have held up relatively well.

When you see that car sales are still going up, same-store sales growth is doing well, loan demand is still going up and loans are behaving well -- you realize it鈥檚 not just naive optimism,鈥� said Carlos Hank Gonzalez, chairman of Grupo Financiero Banorte SAB, Mexico鈥檚 fourth-biggest bank by outstanding loans, also in Acapulco. 鈥淚t鈥檚 based on real change.

Mexican stocks have shown resilience. The nation鈥檚 benchmark equity gauge reached an all-time high last week, and all but eight of the 35 companies on the index have posted gains this year. Grupo Elektra SAB, the banking and retail company owned by billionaire Ricardo Salinas, has advanced the most, rising 73 percent. OHL M茅xico SAB, a unit of Spanish builder Obrascon Huarte Lain SA, has added 29 percent, while silver miner Industrias Penoles SAB is up 24 percent.

Last week, investors saw signs that Mexico鈥檚 dormant IPO market is coming back to life. Banco del Baj铆o SA is said to be reviving plans from three years ago to raise as much as $300 million. Mexican lender Banca Mifel SA, which is backed by Advent International, is also considering an IPO, people familiar with the matter said last week. And Nexxus Capital-backed fast-food operator Taco Holding SA is seeking to raise $100 million by going public in the third quarter of this year, CEO Javier Rancano said Thursday. Only one Mexican company has gone public in the past six months.

American manufacturers, once frozen by Trump鈥檚 threats of retaliation, are even sending jobs south again. Companies including Illinois Tool Works Inc., Triumph Group Inc. and TE Connectivity Ltd. are scaling back manufacturing operations and adding workers in Mexico.

Trade between M茅xico and the U.S. has grown fivefold to more than $500 billion a year since Nafta took effect in 1994. Nafta, which phased out most tariffs among the three countries over the past two decades, has proven crucial to Mexico鈥檚 emergence as a manufacturing hub.

The softer tone on M茅xico may not last forever, with White House officials insisting there鈥檚 been no change in Trump鈥檚 goals for Nafta talks. The U.S. could push for changes to the trade agreement that boost tariffs in certain industries, change tax treatment, expand opportunities for agriculture and strengthen rules of origin that favor the U.S. economy, according to the draft of a letter from the administration to Congress that circulated last week.

We will still be seeing uncertainty -- for example, while Nafta and the U.S. fiscal reform are being defined, it could delay some foreign investment decisions,鈥� Carlos Slim Domit, America Movil SAB鈥檚 chairman and the eldest son of Mexico鈥檚 richest man, said in an interview in his M茅xico City office. 鈥淏ut Mexico鈥檚 relationship with the U.S. goes far beyond the short-term moment. Our agenda is broad and with good opportunities for both economies.

Risks to Mexican markets could also come from within. The front-runner in early polls for the 2018 presidential election, Andres Manuel Lopez Obrador, has raised red flags among investors for his promises to boost social-welfare spending and his opposition to allowing private investors in industries that have traditionally been run by the state, including oil.

Let鈥檚 not forget that at the end of the year we have another speed-bump, which is the start of the political campaigns,鈥� Arturo Jose Saval Perez, senior managing director at private equity firm Nexxus Capital, said at a conference hosted by Amexcap, Mexico鈥檚 private equity association. 鈥淭hat鈥檚 going to cause headline risk.

In the meantime, investors are hitting the restart button.

We put our investing on hold for two months. We鈥檙e now investing again,鈥� said Carlos Mendoza, senior managing director at Discovery Americas, during the same conference. The U.S. elections marked 鈥渁 bad day for Mexico. But I think at the end of the day, it鈥檚 going to be a good thing because it lit a fire under people to act.

Source: BloombergMarkets

By: Michelle Davis and Andrea Navarro