By Dimitra DeFotis
Argentina’s October 25 presidential election could produce a second round of voting on November 22, the latest polls show, which should mean stagnation for the Global X MSCI Argentina exchange-traded fund (ARGT).
Reuters
The moon over the Rio de La Plata in Buenos Aires, Argentina.
The Argentina ETF has done relatively well of late with the rally in emerging market equities and the prospect for domestic change: the fund has rallied 10% this month, better than the 7.5% October rise in the iShares MSCI Brazil Capped ETF (EWZ) and the 8% rise in the iShares MSCI Emerging Markets ETF (EEM). The Argentina fund has declined more than 6% this year, while the broader emerging market fund is down 10%, and the decimated Brazil fund is down nearly 36% in 2015.
Teneo Intelligence Analyst Nicholas Watson points to the “imperfect science” of Argentina polling but suggests there have been no signficant changes in voter opinion in recent months: Daniel Scioli of the governing Victory Front or FpV party is the favorite to replace President Cristina Fernandez de Kirchner, whose long tenure is coming to an end due to term limits.
While Watson sees four possible election scenarios, the only one with significant probabilities – a 60% chance — is that Scioli is unlikely to garner the 45% of the vote needed to win, or 40% of the vote and a ten-point margin of the second-place candidate, to avoid a runoff election — but wins in two rounds. Watson writes:
“… Scioli’s difficult balancing act between change (to win back Peronists who are disillusioned with Fernandez) and continuity (to maintain the support of die-hard Kirchneristas) explains his failure to grow in the polls since August. For every gesture of pragmatism, Scioli comes under attack on his left flank. At the same time, demonstrations of loyalty to the Fernandez model distance Scioli from the nearly 23% of Peronists who in August voted for either [candidate] Sergio Massa or Adolfo Rodriguez Saa, the Peronist caudillo of San Luis province. Scioli is not helped by the parallel candidacy of Anibal Fernandez for the Buenos Aires governorship; Fernandez is a polarizing figure in a district that accounts for 38% of the electorate. [A caudillo is a political leader, often with military leanings.] …
Kirchnerismo has created a glass ceiling for Scioli’s first-round prospects. Scioli’s no-show in the only televised debate on 4 October will not have helped win over a key demographic target: floating voters and disenchanted Peronists. In addition, [candidate] Mauricio Macri could experience a late poll boost that pushes him just above the 30% mark as floating voters look to block Scioli from winning in a single round, opting for Macri as the candidate most likely to push the election to a run-off. According to a Poliarquia poll, 19% of Massa’s supporters say they could still switch to another candidate between now and the vote.
However, even if the election goes to a second-round, Scioli would remain the favorite to secure the presidency. This reflects the fact that failure to win outright on 25 October would give Scioli additional latitude to appeal to Massa voters to return to the Peronist fold …
One of Argentina’s best-performing stocks this year is Grupo Financiero Galicia (GGAL), which has outpaced Banco Macro (BMA), up less than 1%. A new president will be tasked with resolving the country’s dispute with holdout bondholders following defaults. See our posts, “Argentina Upgraded: Election May Bring Holdout Bond Deal,” “Why Goldman Says Sell Argentina Telecom, Mercado Libre Oi” and “Argentina’s YPF: If Oil Flounders, Will Stock Sink?”
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