After President Javier Milei’s party won a resounding victory in a Sunday midterm election, which is a necessary prerequisite for the continuation of economic reforms and the establishment of a US financial backstop, Argentina’s bonds, stocks, and currency are all rising.
International stocks increased by over 20%, local stocks increased by over 20%, and the peso increased by about 6%, halving the initial rally, on Monday, by international bonds, which increased by 9 to 13 cents each.
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Official results from Milei’s free-market reforms and deep austerity measures show that voters in Argentina have strongly supported his policies since taking office nearly two years ago, with inflation steadily falling.
The US pledged a combined $40 billion to Milei, including a potential $20 billion loan facility and a $20 billion central bank swap line, which implied the support was contingent on Milei’s reform agenda.
His victory was “so, so much more than we anticipated,” according to Vontobel Asset Management’s portfolio manager, Thierry Larose. He was previously in a survival state, and he is now very strong in a position to form tactical alliances and push some reforms that were completely out of reach.
Rally
Official results show that the opposition Peronist coalition received 40.8 percent of the vote in Buenos Aires province, compared to the president’s party, La Libertad Avanza (LLA), which received 41.5% of the vote. A dramatic political shift has been made in the province, which has long been a Peronist stronghold. LLA won more than 40% of the vote overall, which is a much better outcome than expected.
According to Christine Reed, the manager of Ninety One’s emerging market fixed income portfolio, “Milei’s victory speech was notably moderate and cooperative, showing willingness to work with non-LLA legislators on reforms.”
The US dollar’s benchmark for foreign dollar bonds increased by 13 cents to 73 cents as of the end of the 2038 maturity, in contrast to earlier highs posted earlier this year.
Financial shares increased by 50%, and the Global X MSCI Argentina ETF increased by 20% after falling by 10% year-to-date through Friday. The list of US-listed companies also increased. On US exchanges, prices increased by 34 percent.
The peso was initially up by 13 percent to the dollar at 1,320 per greenback, before rising by 5.8 percent to 1,410 on the day.
According to Matthew Graves, portfolio manager for emerging markets debt at PPM America, the currency’s strength makes sense, especially given the backdrop of US support.
He said, “The government has some breathing room now, and it can decide where to proceed next.” We still believe that a transition to a more a managed-float FX framework can be made easier with the FX bands. Investors will be interested in learning about the potential benefits of this approach as well as how it will help to accelerate the accumulation and rebuild of FX reserves.
Longer prospects for foreign investors
Since Milei’s party lost in a provincial election last month in Buenos Aires, Argentina’s assets have been on a roller coaster ride.
Since the start of the year, the peso had fallen by almost 25% and by almost 30% since mid-April’s partial elimination of foreign exchange controls. It hit a record-setting closing low of 1,491.50 per dollar on Friday.
After returning over 100% to investors in 2024, Argentina’s international dollar bonds were among the worst-performing emerging market high-yielders as of Friday.
Last month, the benchmark local stock hit its lowest monthly reading. Its recent increase of more than 20% has slowed to close to 30% from its previous all-time high of January.
Investors claim that as the electoral risk is reduced, Milei’s party’s stronger position in the legislature will now encourage more investment. Even in the upcoming general election in 2027, it raises hopes for reform-minded candidates.
According to Graham Stock, senior sovereign strategist at RBC BlueBay Global Asset Management, “the midterms yesterday just give a longer horizon for potential foreign investments, both in financial assets and in real assets.”
With a wider band or a free float of the peso among the options, confidence in Milei’s reform plan could naturally boost the currency, according to RBC’s Stock. However, some still anticipate a , reforming the foreign exchange framework , that would encourage the accumulation of reserves.
The outcomes, according to Carmen Altenkirch, a sovereign analyst for emerging markets at Aviva Investors, could trigger a “virtuous cycle” in which locals will start selling their currency once more.
A stronger exchange rate, according to Stock, is possible, adding that the country’s key weakness was dollar reserves, which are currently at a loss.
