Outsider economist Javier Milei’s surprising victory in Argentina’s presidential primaries has sent shockwaves through the markets. Here are the key takeaways from this unexpected outcome:
In response to the heavy electoral defeat, the government has devalued the official peso rate by 18%, a move aimed at stabilizing the country's economy. Additionally, the central bank has raised interest rates by a staggering 21 percentage points to 118%, in an effort to curb inflation and instill confidence in the markets.
The stock market has taken a major hit following Milei's win. The local Merval index, when measured in dollar terms, plummeted by as much as 14%. Simultaneously, an Argentina ETF traded in the United States experienced its sharpest decline since March 2020, with heavy trading volumes. Bond prices have also been adversely affected, especially among Europe-based bonds.
Milei, a strong critic of the central bank, managed to secure a significant portion of the votes in Sunday's primary elections. He has made bold promises, including his intention to dismantle the central bank. On the other hand, Patricia Bullrich, an advocate for market-friendly policies, emerged as the nominee for the main opposition bloc, which ranked second. Economy Minister Sergio Massa, representing the incumbent Peronists, trailed behind.
Given the close three-way race, it is highly unlikely that the election will be definitively settled in the first round on October 22. This means that investors should brace for further uncertainty, as the election is expected to proceed to a second round in November.
The unexpected outcome of Argentina’s primary elections has sent shockwaves through financial markets, with stocks, bonds, and the country's currency experiencing significant turbulence. As investors await the final outcome, they prepare for a period of heightened uncertainty in Argentine politics and its impact on the economy.