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Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens@baml.com Liquid Insight Trump’s effect on MXN Key takeaways ¢ We provide an empirical analysis of Donald Trump's potential effects on the Mexican peso ¢ Our analysis suggests the exchange rate is perhaps as much as 15% undervalued ¢ We remain neutral for now given US election risks are likely to remain high in the near term By Claudio Irigoyen and Ezequiel Aguirre Chart of the day: MXN may be as much as 15% undervalued ND Oo ND os) ry + 2 2 5. cy a >» cy cy “a cy i NOE ADA OO NOE ADs OO 2014 2015 2016 Model (with Trump) = VX Model (without Trump) Source: BofA Merrill Lynch Global Research, Bloomberg Trump’s effect on MXN We provide an empirical analysis of Donald Trump’s effects on the Mexican peso. Our analysis suggests the exchange rate is perhaps as much as 15% undervalued. In our view, buying the Mexican peso likely would prove a profitable strategy if Hillary Clinton wins. However, we remain neutral for now given US election risks are likely to remain high in the near term. A model of MXN weekly returns including Trump We estimate a model of MXN returns with standard financial fundamentals that also includes Donald Trump’s RealClearPolitics polling average in the US presidential election. It is generally accepted now that Trump’s chances in the US election have been a major driver of the Mexican peso (Chart 1). Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 6 to 7. Analyst Certification on page 5. 11668923 Timestamp: 22 September 2016 12:30AM EDT Bankof America Merrill Lynch 22 September 2016 Rates and Currencies Research Global Global Rates & Currencies Research MLI (UK) Claudio lrigoyen LatAm FI/FX Strategy/Economist MLPF&S +1 646 855 1734 claudio.irigoyen@baml.com Ezequiel Aguirre LatAm FI/FX Strategist MLPF&S +1 646 855 9689 ezequiel.aguirre@baml.com Adarsh Sinha FX Strategist Merrill Lynch (Hong Kong) +852 3508 7155 adarsh.sinha@baml.com Yang Chen Rates Strategist Merrill Lynch (Hong Kong) +852 3508 8695 ychen8@baml.com See Team Page for Full List of Contributors Recent Liquid Insight Publications 21 Sep 2016 Eur FRA-OIS and 3s6s_ basis: tighter, despite wider credit spreads 20 Sep 2016 BoJ preview: Bod to try, try again 19 Sep 2016 A cautiously hawkish Fed 16 Sep 2016 UK _inflation-linked_— when the “pass-through” has passed through 15 Sep 2016 Getting unreal 14 Sep 2016 The real rate quide to FX 13 Sep 2016 Consumption Gumption 12 Sep 2016 UK: Better but not good 9Sep 2016 The Fed's cacophony of sound 8 Sep 2016 EEMEA: The ECB buys EM too HOUSE_OVERSIGHT_010609