Argentina: Merval stock index falls 12%, blue dollar closes at 1,100 pesos after first round of elections

This Monday (23), the Argentine market reacted strongly to the results of the first round of the presidential elections in the country, with expected sell-offs materializing in some segments.

Economy Minister Sergio Massa performed better than expected in Sunday’s presidential election, dashing hopes for a more positive performance from the more market-friendly candidate.

Massa surprised pundits on Sunday night with nearly 37% of the vote, forcing a runoff next month with second-place finisher Javier Millais. an outsider a libertarian who received 30% support with 97% of the vote counted. The biggest question for investors is where the supporters of third-place candidate Patricia Bulrich (who was seen as the friendlier candidate) will fall in the Nov. 19 runoff.

At today’s exchange rate, according to the Argentine newspaper “La Nación”, one dollar is equivalent to 365.50 Argentine pesos at the official exchange rate and 1,100 Argentine pesos when sold at the parallel exchange rate, the so-called Blue dollar, which indicates the devaluation of the Argentine currency. There was little trading in the informal market last Friday ahead of the first round, with the dollar trading between 980 and 1,010 pesos.

The country’s dollar-denominated bonds, which trade between 20 and 27 cents on the dollar, were the worst performers in emerging markets on Monday. Stocks fell across the curve, with bonds maturing in 2030 down 3.3 cents before paring losses.

Argentine shares fell sharply, with US-listed oil company YPF down 6.51% and Cresud down 6.54%. Shares of Banco BBVA Argentina, Grupo Financiero Galicia and Grupo Supervielle, which registered losses in the morning, closed with mixed movements.

In Buenos Aires, the Merval index fell by 12.44%.

Despite the drop, the Argentine peso-listed stocks that make up Merval are still up more than 260% this year, maintaining the appearance of slightly stretched valuations (ie, cheap stocks) pending a change in political trajectory. Local investors also invested in stock markets to hedge against inflation, which soared to triple digits for the first time since 1991.

“Massa and Miley are predicting more uncertainty,” said Graham Stock, senior emerging markets sovereign strategist at RBC BlueBay Asset Management in London.

“In Massa’s case, the key question is which part of the broad Perinist coalition will dominate his government. In the case of Millais, the key question is how far he would be able to implement his radical economic and social program,” Stock added.

The surprising strength of the incumbents, despite the country’s worst economic crisis in two decades, with a recession looming after a devastating drought, produced a polarized runoff.

While investors expected Milei to advance to the second round, Massa’s strong performance is negative for asset valuations as it means friendly candidate Patricia Bulrich has dropped out of the race, stressed Bruno Gennari, emerging markets strategist and sales department of KNG Securities LLP.

“We will be watching closely what the various leaders of the third-place coalition have to say about the candidates in the race, as some members of the opposition coalition may not be too happy to accept Miley,” Gennari said.

“To win, Massa and Miley must win over Bullrich voters,” added Kimberly Sperfechter, emerging markets economist at Capital Economics.

Levante Corp points out that Massa’s vote was a surprise in Buenos Aires province, a key contested area due to the large turnout for the election results.

There is a bit of upside for Levante analysts to consider. “Now the trend is that both candidates are nodding towards the political center, moderating their speeches and bringing some positive signals to the markets. In the short term, however, the result of this first round should be negative, the leadership since Kirchnerist was unexpected and this Sunday even talked about the victory of Javier Millais. Investors and economists call the last Perenist governments, mainly under the command of the Kirchners, responsible for the very fragile situation in the Argentine economy,” he assesses.

(com Reuters)

Relatives