Argentina’s bonds, stocks and currency are surging after President Javier Millay’s party won a landslide victory in Sunday’s midterm elections, a key prerequisite for keeping economic reforms on track and maintaining the U.S. fiscal backstop.
On Monday, international bonds rose between 9 cents and 13 cents each, domestic stocks jumped more than 20% and the peso rose about 6% against the dollar, halving its initial gains.
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Official results from Argentina’s parliamentary elections on Sunday show voters strongly support Mr. Milley’s free-market reforms and deep austerity measures, even as inflation has fallen sharply since he took office nearly two years ago.
The unexpectedly strong performance came after the United States pledged a total of $40 billion to support Millais, including a $20 billion central bank swap line and the possibility of a $20 billion credit facility, suggesting its support would depend on Milley’s reform agenda.
“His victory was much higher than expected,” said Thierry Larose, portfolio manager at Fontbel Asset Management. “Before, he was in a position to survive, but now he’s in a very strong position to form tactical alliances and try to push through some reforms that are completely out of reach.”
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According to official results, the president’s party, La Libertad Avanza (LLA), won 41.5% of the vote in Buenos Aires province, compared to 40.8% for the Peronist opposition coalition. The state has long been a Peronist stronghold and is undergoing dramatic political change. Nationally, LLA received over 40 percent of the vote, far exceeding expectations.
“Importantly, Mr. Milley’s victory speech was remarkably moderate and collaborative, demonstrating a willingness to work with non-LLA members on reform,” Christine Reed, emerging market fixed income portfolio manager at NinetyOne, said in a note.
The country’s international dollar bonds, which matured in 2038, rose 13 cents to 73 cents to the US dollar, hitting a historic high set earlier this year.
U.S.-listed stocks of Argentine companies also soared, with financial stocks up as much as 50% and the Global X MSCI Argentina ETF up 20% after falling 10% year-to-date through Friday. Shares traded on U.S. exchanges rose 34%.
The peso initially rose as much as 13% against the dollar to $1,320, and ended the day 5.8% higher at $1,410.
Matthew Graves, portfolio manager for emerging market fixed income at PPM Americas, said a strong currency makes sense, especially with support from the United States.
“The government now has some leeway and can take the next step from a relatively strong position,” he said. “We still believe that FX bands are better used as a tool to facilitate the transition to a more truly managed floating FX framework. Investors will be keen to understand what this path will look like and how it will facilitate faster accumulation and rebuilding of foreign exchange reserves.”
Long-term perspective of foreign investors
Argentina’s fortunes have been on a rollercoaster ride since Millay’s party suffered a bigger-than-expected defeat in the provincial vote in Buenos Aires last month.
The peso has fallen about 25% since exchange controls were partially lifted in mid-April, and has fallen nearly 30% since the beginning of the year. On Friday, the dollar closed at an all-time low of 1,491.50.
Argentina’s international dollar bonds were one of the worst performing emerging market high-yield bonds this year through Friday, after returning more than 100% to investors in 2024.
Local stock benchmarks hit a one-year low last month. It has since risen more than 20%, but is still down nearly 30% from its all-time high set in January.
Investors say strengthening Milley’s party’s position in parliament would encourage further investment as election risks recede. Expectations are also high for reform-minded candidates in the next general vote in 2027.
“Yesterday’s midterm elections only demonstrated the long-term potential for overseas investment in both financial and real assets,” said Graham Stock, senior sovereign strategist at RBC BlueBay Global Asset Management.
RBC’s Mr. Stock said that while there are still expectations for reform of the foreign exchange framework to encourage the accumulation of foreign exchange reserves, including options such as widening the range of the peso and allowing it to float freely, the peso could naturally appreciate if there is confidence in Mr. Milay’s reform outlook.
Carmen Altenkirch, emerging market sovereign analyst at Aviva Investors, said the results could start a “virtuous cycle” in which locals start selling dollars again.
“I think exchange rate appreciation is achievable,” Stock said, adding that the depletion of dollar reserves is a key weakness.
“They need to take advantage of the strong peso to buy up dollars and increase their foreign exchange reserves, and the current administration can do that,” he said.
