Stocks, bonds rally over Argentine vote-winner's 'chainsaw' change pledges By Reuters
2023-11-20 21:20:08

By Jorgelina do Rosario and Libby George

BUENOS AIRES/LONDON (Reuters) -Far-right libertarian Javier Milei's strong win in Argentina's presidential election is boosting bonds and equities but putting downward pressure on the peso currency, investors said on Monday.

The outsider radical, who has pledged to take a chainsaw to public spending, "burn down" the central bank and dollarize the economy, beat Peronist economy chief Sergio Massa in Sunday's vote, though he struck a measured tone in his first speech as president-elect.

The South American country's markets are closed on Monday for a local holiday. But its overseas dollar bonds, which largely trade deep in distressed territory, rallied more than 2 cent to just above 30 cents on the dollar at 1144 GMT, according to MarketAxess data.

JPMorgan's Diego W. Pereira said in a note to clients late on Sunday that it would not change its recommendation on Argentina's international bonds from its measured "market weight" stance.

"While we expect the outcome to be constructive for valuations in the immediate term, the lingering uncertainty around Milei's policy path, execution capabilities and Argentina's fragile economic stance will still weigh on prices," Pereira said.

U.S.-listed shares of Argentine companies rallied, with oil company YPF trading 18.4% higher, banks including Grupo Supervielle Banco Macro, Banco Bbva Argentina and Grupo Financiero Galicia 8.6% to 11.4% higher and the $50.8 million Global X MSCI Argentina ETF ARGT.N up 12.2% in low volumes.

Milei will not take office until Dec. 10, and investors noted he did not refer to "dollarization" in his first speech, raising questions about how quickly he might pursue scrapping the peso entirely.

He did pledge rapid reforms to fix an economy mired in crisis. Inflation is at 143%, foreign currency reserves are more than $10 billion in the red and a recession is looming. He also signaled moderation and thanked his mainstream conservative backers Mauricio Macri and Patricia Bullrich.

"It is indisputable that a swift change from the failed economic policies of the past is imperative. The accumulated imbalances in the economy have grown too large and must be addressed promptly," Sergio Armella of Goldman Sachs said in a note.

The peso currency lost ground on crypto exchanges, watched by investors as a proxy for the black market. The price of one tether - a cryptocurrency pegged to the U.S. dollar - was around 1011.8 Argentine pesos at 1121 GMT on Monday, having hit as high as 1120.4 late on Sunday, according to the crypto exchange Binance. Binance's website showed that the pair had opened at 913.7 on Friday.

Bruno Gennari, Argentina expert at KNG Securities, said there would likely be quick devaluations; Morgan Stanley said it expected an at least an 80% adjustment of Argentina's official forex in December.

"Given the fragile situation of international reserves, there will be limited room to maintain the current FX level, which requires a 35% nominal depreciation to catch up with the real levels following the 13 August primaries.

Milei, a TV pundit-turned lawmaker with little political experience, rode a wave of voter anger, at times during the campaign pledging aggressive plans to slash state spending and the size of government.

Investors said they would be watching for him to stick to spending cut promises - and quickly - to buoy markets.

"He cannot equivocate," Walter Stoeppelwerth, chief strategist at financial firm Gletir, said of Milei's spending cut plans, despite fear about the pain of austerity with two-fifths of the population already in poverty.

Ilke Pienaar, head of emerging markets sovereign research with PineBridge Investments, said the speed of talks with the International Monetary Fund over its $44 billion loan program, would also be crucial.

"You need to see some decisive action in the coming weeks to make sure they can weather the repayments," she said, citing payments coming due in December and January.

Milei will be buoyed by his larger-than-expected vote take of 56% in the run-off after he got 30% in the first round vote last month. But he still faces a divided Congress where his Liberty Advances bloc only has a small share of seats.

"Having a resounding outcome like he did yesterday ... gives him a strong public mandate, particularly given his position of weakness in congress," Jimena Blanco, head of Americas with Verisk (NASDAQ:) Maplecroft, said.

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