Argentina Braces for Market Reopening After Milei’s Victory

Following the victory of Javier Milei in Argentina's Presidential election over the weekend, investors are gearing up for the reopening of the country's local markets. A newcomer on the political landscape and known for his radical libertarian views, Milei's win has left a significant impact on the financial scene even with Argentine markets being shut on Monday due to the election aftermath.

Surge in International Market Activity

Despite the local market closure, Argentina's international market assets saw vigorous trading. Notably, stocks related to Argentina's main energy company YPF skyrocketed by 40% following Milei's intention to privatize the firm. Prices of international bonds tied to Argentina also rose in anticipation of Tuesday's market reactions.

Milei’s Economic Vision

Milei has made grand promises of economic revitalization for Argentina's faltering economy. Central to his approach is managing the Argentine peso, whose official value is significantly higher than its street value. Analysts from Morgan Stanley anticipate an 80% drop in the peso’s value within the next six weeks. Milei’s pre-election discussions also included bold ideas such as replacing the peso with the US dollar and the dissolution of Argentina's central bank.

Focusing on the currency, emerging market portfolio manager Viktor Szabo highlighted the gap between the official and black market peso rates and the necessity for an adjustment. Yet how and when this will take place remains a point of speculation.

Cryptocurrency Serves as an Alternative

With limited options to trade the peso, some have turned to cryptocurrency markets that operate around the clock. In these markets, one tether—a cryptocurrency equivalent to the US dollar—was trading at a higher peso valuation. Bitcoin also saw increases, with its peso value rising significantly compared to the previous month.

International Shares and ETFs Jump

On the international front, US-listed Argentine bank shares experienced considerable gains. Groups such as Grupo Supervielle, Banco Macro, and others saw their values increase by up to 24%, while the Global X MSCI Argentina ETF hit a recent high point.

Uncertainties and Challenges Ahead

Despite the market optimism, some uncertainty lingers regarding Milei's direction with the economy. His initial speeches post-election did not mention full dollarization, leaving investors guessing about his next moves. With an inflation rate already soaring at 143% and the economy in a fragile state, Milei's pledge to overhaul Argentina's economic system faces several challenges ahead.

Milei's criticism of key trade partners China and Brazil during his campaign has also drawn attention. In response, China warned of serious mistakes should ties be severed, adding another layer of complexity to the future of Argentina's international relations.

Argentina, Market, Election