By Dimitra DeFotis
Argentina’s October presidential election promises market-friendly change that should bolster the economy and hearten investors, according to Eurasia Group, which raised its six-month outlook.
Reuters
Argentina President Cristina Fernandez de Kirchner.
The election is bound to bring one significant change: President Cristina Fernandez de Kirchner cannot be reelected due to term limits. But will the election just bring more of the same? Goldman Sachs downgraded Telecom Argentina Monday, citing the near-term risk of higher inflation.
In trading this afternoon, stocks are rising: Argentine energy producer YPF (YPF) is up 0.7%, Banco Macro (BMA) is up 1%, Grupo Financiero Galicia (GGAL) is up 3% and Telecom Argentina (TEO) is up 5.6%. Petrobras Argentina (PZE) is down 6% today, even with a 1.7% rise in the international Brent crude benchmark to a recent $48.16 per barrel. Taking it all in, the Global X MSCI Argentina ETF (ARGT) is up 1.5% today.
Eurasia Group Latin America Analyst Daniel Kerner writes:
“We are upgrading our short-term (six-month) trajectory from negative to positive on the expectation of a policy improvement under a new administration that will take office on 10 December, regardless of the outcome of the 25 October presidential elections. The main reason for this is that both ruling FPV candidate Daniel Scioli—who we expect will win the elections (60% probability)—or opposition candidate Mauricio Macri will have a more pragmatic approach to economic policy and move Argentina away from the “economic shamanism” that has shaped economic and regulatory policies in Argentina over the past twelve years …
Both Scioli and Macri have rational and pragmatic views in terms of economic and regulatory policies. Moreover, both have surrounded themselves with advisors with more market-friendly views. Both camps have a similar diagnosis of the problems affecting the Argentine economy: lift FX and import controls, deal with the real appreciation of the currency, reduce fiscal spending and launch an anti-inflation plan. Both also coincide in the need to rapidly regain market access (essentially through a deal with holdout creditors) to smooth the adjustment. In both cases, this means some degree of devaluation, a process to lift FX controls, increases in energy prices, improvement in official statistics, and rapid negotiations with holdout creditors.
The main difference, so far, has been that Scioli’s advisors want to follow a gradualist approach, especially in terms of FX, whereas Macri’s propose a more rapid correction … The risk is that the gradualist approach fails to contain the deterioration of the country’s macroeconomic dynamics, and that economic conditions deteriorate further, much like what is happening in Brazil. …”
See our recent posts: Argentina To Sell State Stake In Stocks?, Argentina: ‘Collapse’ Risk, Investing Opportunity, Or Both? and Argentina Wins In U.S. Court; Bad Time For Bonds?
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