Argentine assets remain firm due to optimism over Milei’s victory

The Argentine assets On Wednesday, they highlighted a strong upward trend in prices given the optimistic expectations generated among investors by the recent triumph of the libertarian Javier Milei in the presidential elections, under the commitment of an abrupt cut in public spending.

Purchases of shares and bonuses localities soared after a resounding result at the polls that glimpses a change of direction for the third largest economy in Latin America.

“The reality is that Argentina, until Sunday, was not on the radar of investors, and now it is,” said analyst Javier Timerman of Adcap Grupo Financiero.

“But whether this becomes a sustainable rally over time will depend a lot, first, on the announcements that Milei makes in terms of people, its officials; then, of her plan, and after, of the first movements”, he claimed.

The new president of the southern country, who will assume power on December 10, has not yet announced the names of the officials who will occupy key positions in the economic framework of his cabinet.

In this context, the leading shares listed on the Buenos Aires Stock Exchange grew by a strong 8.60%, to a historical intraday maximum level of 860,646.15 units, where the shares of the state oil company YPF grew by 11.36%. The S&P Merval index soared 22.84% the day before.

Sovereign bonds in the over-the-counter segment showed an average advance of 3.5%, which adds to the 6.2% improvement of the previous session, with a country risk that fell 73 points, to 2,093 units at 12:25 local time (1525 GMT) and return to levels from the end of August.

“The expectation of a radical change in the direction of economic policies once the new Government takes power on December 10 generates greater uncertainty,” said Moody’s Investors Service.

He added that “In this sense, economic and financial volatility could worsen in the weeks leading up to Milei’s inauguration, particularly with regard to the parallel market exchange rate.”

The price of the peso in the marginal exchange market or “blue” It remained stabilized at around 1,070 per dollar, compared to an official price of the currency with controlled devaluation at 356.60 units. The exchange gap was 200%.

“Portfolio dollarizations continue and to a greater extent in alternative dollars,” said an operator, and pointed out that the so-called MEP dollar for which foreign currency is obtained through the negotiation of bonds exceeded 1,000 pesos per dollar.

Expectation of an upcoming devaluation of the currency was reflected in the future peso quotes, where deals for the end of December were agreed at 826 per dollar and jumped to 1,320 units in deals as of May 2024.

The economy of the southern country is hit by inflation that could exceed 180% this year, a large fiscal deficit, reduced reserves in the central bank (BCRA) and a high poverty rate.

Milei committed to dollarizing the economy to reduce inflation and to close the BCRA, although he faces significant obstacles, such as his weak position in Congress to implement his political reforms.