Presidential candidate for La Libertad Avanza Javier Milei looks on during a presidential debate on October 01, 2023 in Santiago del Estero, Argentina. Argentinians will head to polls on October 22.
Tomas Cuesta | Getty Images News | Getty Images
Argentine dollar-denominated bonds were broadly lower Monday after the country’s presidential election threw up another surprise result and spelled more uncertainty ahead.
Economy Minister Sergio Massa of the ruling Peronist coalition took 36.6% of Sunday’s first-round vote, ahead of radical libertarian Javier Milei on 30%, while center-right candidate Patricia Bullrich received 23.8%.
It means Massa and Milei will now go head-to-head in a run-off vote on Nov. 19.
The dollar note due 2035 saw the steepest decline and was being bid at 23.7 cents on the dollar at 2:50 p.m. London time (9:50 a.m. ET), Reuters reported, citing MarketAxess data.
Financial stocks opened lower before trimming losses, while U.S.-listed stocks of Argentine firms including argicultural business Cresud were lower.
Argentina then devalued the peso by nearly 18% and hiked interest rates in an effort to calm markets, which had expected a better showing for moderate candidates.
The next president faces a grim economic situation, with a recession widely expected, inflation forecast at 142.4% for the year, and foreign currency reserves plunging. Milei’s success had been attributed by some analysts as a protest to the dire economic situation and persistent corruption in the country.
“Although both markets and polls had expected Massa to make it with Milei, it was the vote numbers that were surprising,” Christine Reed, emerging market fixed income analyst at asset management firm Ninety One, told CNBC via email.
“We are now expecting a more fragmented congress than before.”
Investors will now be watching for any sign Milei may move toward the center in order to capture Bullrich voters, Reed said, noting this was unlikely based on past behavior.
“Six months ago, Massa might not have been seen so negatively by the market. However, since then, Massa has done some destructive things in the market, including the relationship with the IMF which is concerning for bond holders. His relationship with the IMF seems poor at the moment,” she said.
Sergio Massa, Argentina’s economy minister and presidential candidate of Unity for the Homeland party, speaks during a closing campaign rally in Buenos Aires, Argentina, on Wednesday, Oct. 18, 2023.
Bloomberg | Bloomberg | Getty Images
Strategists at Dutch bank ING, meanwhile, said the November result appeared to be wide open.
“Presumably, Sergio Massa will continue his strategy of social support and looser fiscal policy which has tended to see most of the International Monetary Fund fiscal targets being missed. Equally, Javier Milei will continue to showcase the dire state of the economy under Massa’s stewardship and demand a sea change in Argentina’s economic policy,” they said in a Monday note.
“It is not quite yet clear whether the Argentine electorate is ready for a brave new world, but much uncertainty over the next month – along with neither candidate showing much love for the beleaguered peso – will likely keep Argentine assets under pressure.”