Argentina’s bonds, stocks and currency are surging after President Javier Milei’s party won an overwhelming victory in a Sunday midterm election, a key requisite to keep economic reforms on track and a United States financial backstop in place.
On Monday, international bonds rallied between 9 and 13 cents each, local stocks jumped over 20 percent and the peso strengthened some 6 percent to the dollar, halving its initial rally.
Official results in Argentina’s Sunday legislative elections show voters strongly backed Milei’s free-market reforms and deep austerity measures, with inflation falling sharply since he took office nearly two years ago.
The unexpectedly strong showing came after the US pledged a combined $40bn to support Milei – a $20bn central bank swap line and a potential $20bn loan facility – and implied the backing was contingent on Milei’s reform agenda.
“His victory was so, so much larger than expected,” said Thierry Larose, portfolio manager at Vontobel Asset Management. “Previously he was in a state of survival, and now he’s … in a very strong position to try to form tactical alliances and push some reforms that were completely out of reach.”
Rally
The president’s party, La Libertad Avanza (LLA), received 41.5 percent of the vote in Buenos Aires province compared with 40.8 percent for the opposition Peronist coalition, according to official results. The province has long been a Peronist stronghold, marking a dramatic political shift. Nationally, LLA took over 40 percent of the vote, a much better-than-expected result.
“Critically, Milei’s victory speech was notably moderate and cooperative, signaling willingness to work with non-LLA legislators on reforms,” Christine Reed, emerging market fixed income portfolio manager at Ninety One, said in a note.
The country’s international dollar bonds were pushing against historic highs posted earlier this year, with the 2038 maturity up 13 cents to 73 cents on the US dollar.
US-listed shares of Argentine companies also surged, with financial shares rising up to 50 percent and the Global X MSCI Argentina ETF adding 20 percent, after falling 10 percent year-to-date through Friday. Stocks traded on US exchanges jumped 34 percent.
The peso initially strengthened as much as 13 percent to the dollar at 1,320 per greenback and was last 5.8 percent stronger on the day at 1,410.
The currency’s strength makes sense, especially with the backdrop of US support, according to Matthew Graves, portfolio manager for emerging markets debt at PPM America.
“The government has some breathing room now, and can take next steps from a position of relative strength,” he said. “We still think the FX bands are better used as a tool to facilitate a transition to more of a true managed-float FX framework. Investors will be keen to understand what this path might look like, and how it will facilitate a more rapid accumulation and rebuild of FX reserves.”
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