Historic win gives Mexico's Sheinbaum a landslide, spooks markets

By Kylie Madry and Valentine Hilaire

MEXICO CITY (Reuters) -Claudia Sheinbaum, a climate scientist and protege of Mexico's popular outgoing president Andres Manuel Lopez Obrador, won a landslide to become the country's first female leader, though the scale of her victory sparked jitters in the markets.

Former Mexico City mayor Sheinbaum, 61, won the highest vote percentage in the history of Mexico's democracy, according to preliminary results from the electoral authority. She secured 58.8% of the votes with 82% of the ballots counted.

In her victory speech on Sunday night, Sheinbaum, a physicist who was part of a United Nations panel of climate scientists that received a Nobel Peace Prize in 2007, thanked Lopez Obrador, calling him "an exceptional, unique man who has transformed Mexico for the better."

The victory is seen as a major step for Mexico, a country known for its macho culture and home to the world's second-biggest Roman Catholic population. She is the first woman to win a general election in North America, comprising the United States, Mexico and Canada. 

But her party's win was so large that markets fell on concerns that the ruling coalition could secure a congressional super-majority, allowing them to pass controversial constitutional reforms such as in the energy sector unchecked. 

"It was precisely one of the scenarios that investors do not like," Jacobo Rodriguez, an analyst at Roga Capital.

By 11.30am local time (1330 ET) on Monday, Mexico's peso had lost about 3.4% against the dollar while the stock market was down 5%. [L8N3I11J8] 

Luis Maria Alcalde, interior minister in Lopez Obrador's cabinet, said the Morena party's ruling coalition won a super-majority in the lower house of Congress but will be a few seats short in the Senate.

Though if the coalition needs only a few opposition senators to bring about constitutional changes, such reforms are not unfeasible.

Part of the concerns are related to Lopez Obrador, a popular and polarizing titan of Mexican politics who has reshaped the country's political landscape over the past six years. He loomed large over the vote, casting the poll as a referendum on his national project to "transform" Mexico.

More specifically, Lopez Obrador proposed in February a set of constitutional reforms including hiking pensions, obligatory minimum wage increases, and the abolishing of some regulatory bodies, which investors saw as radical and unsustainable.

Lawmakers rejected the plans but investors fear Sheinbaum may pursue those reforms, which include above-inflation minimum wage hikes and election of judges by popular vote, analysts said.

Lopez Obrador on Monday said he would talk to Sheinbaum about pushing through some reforms in the month of September, a short period when he will remain as president even as new lawmakers join Congress. Sheinbaum takes office on Oct. 1 for a six year term.

"We have to get on the same page to discuss these initiatives with Claudia, as well as other things we need to work on together," Lopez Obrador said. "I don't want to impose anything."

DIFFICULT FOOTSTEPS

Lopez Obrador doubled the minimum wage, reduced poverty and oversaw a strengthening peso and low levels of unemployment - successes that made him popular and helped Sheinbaum to victory. But analysts believe Sheinbaum will find it difficult to follow in the veteran leftist's footsteps.

Sheinbaum has rejected opposition claims that she would be a "puppet" of Lopez Obrador, though she has pledged to advance many of his policies including those that have helped Mexico's poorest.

"There is an expectation that she will continue the policies of Lopez Obrador, but also become her own president at the same time," said Jason Marczak, senior director of the Atlantic Council's Adrienne Arsht Latin America Center. 

Main opposition rival, Xochitl Galvez, conceded defeat after mustering just 28.1% of votes with 82% of the ballots counted, according to preliminary results.

Sheinbaum has promised to expand the welfare policies that have driven Lopez Obrador's popularity and her triumph, a tricky task while inheriting a hefty budget deficit and low economic growth. 

She has vowed to improve security but has given few details and the election, the most violent in Mexico's modern history with 38 candidates murdered, has reinforced massive crime problems.

More people have been killed - over 185,000 - during the mandate of Lopez Obrador than during any other administration in Mexico's modern history, although the homicide rate has been inching down.

"Unless she commits to making a game-changing level of investment in improving policing and reducing impunity, Sheinbaum will likely struggle to achieve a significant improvement in overall levels of security," said Nathaniel Parish Flannery, an independent Latin America political risk analyst.

U.S, President Joe Biden congratulated Sheinbaum on winning "historic elections."

Among Sheinbaum's challenges will be tense negotiations with the United States over the huge flows of U.S.-bound migrants crossing Mexico and security cooperation over drug trafficking at a time when the U.S. fentanyl epidemic rages.

Mexican officials expect these negotiations to be more difficult if Donald Trump wins the U.S. presidency in November. Trump has vowed to impose 100% tariffs on Chinese cars made in Mexico and said he would mobilize special forces to fight the drug cartels.

At home, Sheinbaum will be tasked with addressing electricity and water shortages and luring manufacturers to relocate as part of the nearshoring trend, in which companies move supply chains closer to their main markets.

She will also have to wrestle with what to do with Pemex, the state oil giant that has seen production decline for two decades and is drowning in debt.

"It cannot just be that there is an endless pit where you put public money in and the company is never profitable," said Alberto Ramos, chief Latin America economist at Goldman Sachs. "They have to rethink the business model of Pemex."

(Reporting by Kylie Madry, Valentine Hilaire, Lizbeth Diaz, Sarah Kinosian, Ana Isabel Martinez, Noe Torres, Stefanie Eschenbacher, Diego Ore, Anthony Esposito, Brendan O'Boyle, Laura Gottesdiener, Karin Strohecker and Rodrigo Campos; Writing by Cassandra Garrison, Brendan O'Boyle, Drazen Jorgic; Editing by Stephen Eisenhammer, Alex Richardson and Alistair Bell)