Devastating results for Macri as Peronist party takes lead for Presidency in Argentine (3 min read)

Primaries results on 11/8/2019
Source: Ambito Economico
Primaries results on 11/8/2019 Source: Ambito Economico

Argentina is set for one of the worst trading days in weeks after voters in Argentina soundly rejected current administration led by Mauricio Macri. 15 points separated Peronist candidate Alberto Fernandez from Macri in yesterday’s primaries, increasing risks that the Fernandez-CFK formula may return to the Pink House following the presidential elections next October.

The widespread between the candidates in the primaries’ results of yesterday reflects the general sentiment of disappointment among voters as the economic performance of Argentina if far away from what MM promised in 2015. Recall the sharp devaluation of approx. 206% since Macri took office back in 2015, when the ARS was allowed to fluctuate, jumping from ARS 15/USD to the current ARS46/USD. As of June 2019, inflation during the Macri administration surpassed 200%, even considering the 75% - 80% interest rates of the BCRA.

So, what to expect now?

Some analysts are already predicting a “game-over” for the Macri era ahead of the October elections. Investors have been reducing exposure to Argie assets but certainly, yesterday’s results will only accelerate the trend with a warning of “panic” in the market open. As investors fear the return of CFK (behind Alberto Fernandez), the peso could lose approx. 25%, jumping up to ARS56 /USD while bonds are expected to lose 20% of market value during Monday’s trading day.

Apparently, yesterday’s results were unexpected as local polls suggested a “much smaller” difference between the candidates. Also consider that the negative impact of yesterday’s results in the ARS will just fuel further macro deterioration in the already sinking economy, increasing rejection to Macri’s administration.

On the other hand, the Central Bank may not intervene in the FX market even with the 25%-30% potential drop of the ARS vs the USD as it will be an unnecessary waste of reserves, but certainly, investors may want to see an active CB during the week.

Some other analysts suggest that the wide victory of the left-wing party may result in a first-round win in the next October elections which should increase market volatility in the upcoming weeks. What is true is that Macri is now running out of time, with roughly 8 weeks to convince voters about why his economic promises have failed to materialize, giving further leverage to Alberto Fernandez. Recall that to win the Argentine Presidency, the candidate needs at least 45% of the votes or 40% and a 10% difference over the second-place runner.

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Miguel Ovalle has been a credit analyst covering Latam spectrum for corporates and macroeconomics related issues. He previously worked within S&P Global as a credit research analyst. He can be contacted here.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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