Argentine markets nervous due to electoral hangover

Investors in Argentina see a silver lining, as the defeat of the ruling Peronists in a legislative vote could spark a shift toward more orthodox economic policies, but there are also concerns that a bruised government could adopt an even more populist stance.

The conservative opposition won a key position in Congress nationwide on Sunday, erasing the Peronist majority in the Senate, forcing President Alberto Fernández to work across the board to push for new legislation.

“The most relevant result in our opinion is that the government bloc lost the majority of the Senate,” said Diego Pereira, JP.Morgan chief economist for the Southern Cone. He described it as a “coup” to the most populist wing of the Government headed by Vice President Cristina Fernández de Kirchner.

The vote supported the result of an open primary election in September that prompted a major cabinet shakeup and created divisions in the ruling party. President Fernández late on Sunday adopted a conciliatory tone and called for the cooperation of all parties.

“The market is likely to adopt a clearly positive view of the election results,” said Alberto Ramos, head of economics for Latin America at Goldman Sachs.

He stated that voters appear to have rejected the current policy mix and its results, pointing to “very high inflation coupled with declining economic and wage growth. But there is also the risk of more populist policies in the short term ”.

Investors in the country generally view conservatives as more market-friendly and distrust the center-left Peronist government of Fernández and his powerful vice president.

Calm the markets

The electoral defeat could lead to further division within the ruling Peronists and see a possible takeover by more far-left factions allied to Fernández de Kirchner, and hinder more moderate voices such as that of the Minister of Economy, Martín Guzmán.

But it also gives the opposition a boost, which investors may see as a positive thing ahead of the 2023 presidential vote.

The prices of sovereign bonds have been stagnant amid difficulties for months, after the debt restructuring carried out in 2020, much of the risk is already discounted.

“The value of the bonds already reflected a situation of great uncertainty, so I think the result itself will not change too much (prices),” said Santiago Bulat, an economist at the consulting firm Invecq.

Stock markets were shaky ahead of Sunday’s vote.

The MSCI Argentina index fell 7.5% since Tuesday, when it closed at its highest level since the Peronists won the primary elections in August 2019.

For its part, the S&P Merval local currency benchmark has hit a series of all-time highs this year, most recently on Tuesday, as locals buy stocks amid a weakening currency and as the rise in Inflation erodes the value of your savings.

The official peso has lost 16% of its value against the US dollar this year in a controlled devaluation, but the informal exchange rate is almost twice the official rate. Annualized inflation is above 50%.

“The government must calm the markets, communicating a more orderly fiscal and monetary policy,” said Rodrigo Álvarez, an economist and financial consultant from Buenos Aires. “You need a plan to stabilize things,” he said.