Argentine assets are poised for a significant rally following President Javier Milei’s impressive performance in the legislative elections, surpassing even the most optimistic predictions and alleviating investor fears that his ambitious economic overhaul of the crisis-ridden nation might falter. As over 90 percent of ballots have been tallied, Milei’s party has secured 41 percent of the votes, resulting in the acquisition of 64 seats out of the 127 available in the lower house of Congress, along with 13 of the 24 contested Senate positions. Market expectations indicated that the governing coalition was projected to secure approximately 30 percent of the seats. The peso exhibited an upward trajectory in the cryptocurrency market on Sunday following the announcement of the results. “The scale of Milei’s victory ranks at the most optimistic end of pre-election expectations,” stated Alejo Czerwonko. “His party currently possesses the political capital required to expedite structural reforms.”
The results are expected to alleviate concerns regarding the nation’s ongoing receipt of essential support from the US. Before the vote, the Trump administration finalized a swap line worth US$20 billion with Argentina’s Central Bank aimed at stabilizing the peso, and engaged in discussions with a consortium of banks for an extra US$20 billion financing package. Trump had previously indicated that he might retract his support if Milei’s agenda were to falter, stating to reporters, “if he wins we’re staying with him, and if he doesn’t win we’re gone. I’d expect a nice recovery in asset prices tomorrow – led by dollar bonds,” stated Christine Reed during an interview. “The local bond curve is expected to experience a significant rally.” The peso is expected to rebound, as “the market went too long US dollar into the election,” noted Matias Montes. “There will be a significant rush to liquidate positions.” Milei’s rise to power in 2023 triggered a significant rally throughout Argentina’s markets, propelling a wide array of assets, including stocks and sovereign bonds. The nation’s dollar-denominated debt has surged by 144 percent since his election, ranking just behind Lebanon and Ecuador among emerging-market counterparts monitored by Bloomberg during the same timeframe.
The gains experienced a decline last month following Milei’s disappointing performance in the local election. Yields on sovereign notes due 2035 surged beyond 17 percent, while the currency plummeted by as much as seven percent in a single session, as investors expressed doubts regarding Milei’s capacity to garner sufficient congressional support to advance his comprehensive economic agenda. The extraordinary backing from the US Treasury mitigated losses, yet failed to alter the prevailing negative sentiment. Conflicting statements from US and Argentine officials, frequently devoid of substantial detail, have exacerbated volatility. Direct US intervention has maintained the peso – crucial for Milei to prevent inflation from reemerging – within the trading limits established in Argentina’s most recent agreement with the International Monetary Fund in April. Although neither government has officially disclosed the magnitude of the intervention, traders speculate that the US has expended over US$1 billion in purchasing pesos and supplying dollars as Argentines seek refuge in the greenback due to apprehensions regarding a potential devaluation. However, the peso has persisted in its decline, finishing on Friday at 1,492 per US dollar, just cents away from its lowest threshold. Although trading in the spot market commences in the mid-morning, preliminary signals from the crypto market indicated a level of 1,435, suggesting an increase of approximately 4.8 percent.
Milei and his party have “emerged as big winners with a renewed mandate,” noted Kathryn Exum. “This victory suggests that governors and politicians may be inclined to collaborate with Milei, provided the conditions are favorable, thereby creating an opportunity for reforms.” Prior to the vote, analysts were predicting that Milei would secure approximately one-third of the votes. This would suffice to ensure the president’s veto authority and restrict Congress from undermining his initiatives. For investors, US support, along with a more pragmatic and moderate shift from Milei, could offer sufficient relief to the nation’s beleaguered currency. The decisive victory positions Milei’s party favorably to engage in negotiations with other factions to advance the reforms, as noted by Joaquín Bagues. “Let the party begin,” he remarked.