Argentine markets under pressure after far-right victory
BUENOS AIRES/LONDON (Reuters) - Pressure on Argentina's currency and stock markets mounted early on Monday after a surprise victory in primary elections by a far-right libertarian who wants to ax the central bank and dollarize the economy.
Lawmaker Javier Milei shook up the race to the presidential election in October, far outstripping forecasts and winning about 30% of the vote, the largest share with more than 90% of the ballots counted.
Markets were betting on a strong performance by more moderate candidates, who had a bad night, in a vote that acts as a dress rehearsal for national elections two months from now.
The result could weaken the peso in popular parallel markets on Monday and weigh on bonds that have rallied in recent weeks. Meanwhile, Argentine shares were sharply lower, with the Global X MSCI Argentina ETF down 4.3% in premarket US trading.
Investment bank JPMorgan predicted "increasing pressure on the exchange rate, which will lead to a widening of the gap between the parallel and official exchange rates," according to a note led by analyst Diego Pereira.
The official exchange rate is 287 pesos to the dollar, while the free floating rate is more than double that amount. The U.S. bank recommended maintaining "market weight" on Argentina's government bonds as the current financial environment "will continue to deteriorate." Argentina's markets have long been volatile on the back of years of economic crisis.
After a similar primary election shock in 2019, bonds and the currency have collapsed and remain in trouble territory, with the peso now held back by capital controls that the government has been unable to loosen.
Latin America's third-largest economy is struggling with a severe economic crisis, with sky-high inflation and shrinking central bank reserves. Gross reserves are $23.8 billion, but net reserves, discounting liabilities, are more than $8 billion in the red, according to private analysts.
Sunday's victory for Milea, the rock-singing economist, adds another unknown factor that could erode market confidence, though that could be tempered by the fact that he still faces a tough fight in October and a likely November runoff that would test his ability to win more voters .
Goldman Sachs said in a note ahead of the vote that Milei supports "more radical policy proposals" including dollarization and sharp spending cuts, which has brought some uncertainty given that he does not have an established political machine.
In October, he will face a three-way race against former security minister Patricia Bullrich, who won the main conservative nomination for Together for Change, and Peronist coalition candidate and economy minister Sergio Massa.
A candidate needs 45% of the Oct. 22 vote to win outright, or 40% and a 10-point lead for second place. If there is no winner, as seems likely, a direct vote between the top two candidates will be held in November. "What we are left with is a much more uncertain scenario than we expected," said Ricardo Delgado. , director of the Argentine economic consultancy Analytica.
Argentina is the International Monetary Fund's largest borrower, with a $44 billion program approved in March last year to refinance a 2018 loan. The latest programs have failed to stem the economic crisis, inflation has topped 100% and four out of 10 Argentines live in poverty.
The cash-strapped economy has even had to tap China's swap line and get a loan from Qatar to repay debt owed to the Washington-based lender as discussions over a review of the program drag on and further payments are now delayed.
Although the country recently reached a staff-level agreement with the fund to release about $7.5 billion, the deal still needs executive council approval, which is expected in the second half of August. Reporting by Eliana Raszewski and Jorgelina do Rosario; More news from Jorge Otaola and Medha Singh; Writing by Adam Jourdan; Editing by Stephen Coates, Bernadette Baum and John Stonestreet
Argentina's political landscape has been rocked by the surprise victory of the far right in recent elections. This unexpected turn of events has put the country's markets under considerable pressure, with investors and analysts closely monitoring the implications for the economy. In this article, we delve into the impact of the far-right win on Argentina's markets and explore the potential challenges and opportunities ahead. Argentine markets, far-right elections, political environment, economic implications, investors, challenges, opportunities
The recent electoral success of the far right has sent shockwaves through Argentina's political establishment. The shift in power raised concerns among investors, leading to increased market volatility. As a result, key indices saw fluctuations and the Argentine peso faced a decline in value against major currencies. election success, market volatility, key indices, Argentine peso, decline in value
Investor Mood:
Uncertainty stemming from the victory of the far right led to cautious investor sentiment. The situation is being watched closely by foreign investors in particular, who are evaluating the new government's policy and its possible impact on the business environment. This cautious stance led to a reduction in foreign direct investment (FDI) in the short term. uncertainty, investor sentiment, foreign investors, government policy, business environment, foreign direct investment (FDI)
Economic consequences:
Far-right economic policies and reforms will play a key role in determining Argentina's economic trajectory. Investors are very interested in the government's stance on fiscal responsibility, trade agreements, taxation and trade regulations. Clarity on these fronts is essential to restore confidence in markets and attract domestic and international investment. economic policy, fiscal responsibility, trade agreements, taxation, trade regulation, confidence in the market, investment
Challenges and opportunities:
While the current situation presents challenges, there are also potential opportunities for Argentina's markets. The new government's proactive approach to addressing investor concerns and communicating a clear economic agenda may help stabilize markets. In addition, the far right's emphasis on certain sectors, such as agriculture and energy, could lead to growth opportunities in these areas. proactive approach, investor concerns, economic agenda, market stabilization, agriculture, energy, growth opportunities
Argentine markets are undoubtedly feeling the pressure after the unexpected victory of the far right. The country's economic future depends on the government's ability to manage the challenges and seize the opportunities this political shift brings. Investors and analysts will be watching developments closely, and clear and decisive action by the new administration will be vital to restore stability and support a favorable investment environment. economic future, government action, stability, investment environment, political shift, development Please make sure to review this for the latest information and edit the article as necessary, as this content is based on knowledge available up to September 2021.
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