Argentina’s Presidential Race: Investors Take Risks on Market-Friendly Outcome
The upcoming presidential race in Argentina has caught the attention of risk-taking investors, despite the challenges of steering the country out of its deep economic crisis. While many traders remain cautious and uncertain about the frontrunner Javier Milei, some bold bond investors are making moves.
Optimism for a Market-Friendly Government
These investors are betting on the emergence of a more market-friendly government after the October 22nd vote. Whether it’s Milei, conservative rival Patricia Bullrich, or the ruling Peronist coalition candidate Economy Minister Sergio Massa, the hope is for substantial fiscal consolidation.
Christine Reed, a portfolio manager at global investment manager Ninety One, says, “Two-thirds of the country is voting for pretty substantial fiscal consolidation, which, as a bond investor, we’re obviously quite keen on.” Despite the high risk associated with Argentina’s history of sovereign debt defaults and falling bond prices, Ninety One has increased its allocation to the country since Milei’s surprising first-place finish in the open primary election in August.
Rob Citrone, founder of U.S.-based hedge fund Discovery Capital Management, sees Argentina as one of the best opportunities in emerging markets. He believes that supporting a candidate like Milei, with his radical views on a free market and smaller government, represents a generational change.
Shifting Focus from Populism
Investors have taken note of the perceived weakness of Vice President Cristina Fernandez de Kirchner, a left-wing populist and former president known for her conflicts with investors. The focus of the policy debate has shifted to a more market-friendly framework, regardless of the election outcome, according to analysts at BancTrust & Co.
Depressed Bond Prices and Valuation Argument
Argentina’s bond prices are trading at depressed levels, significantly lower than even countries currently in default. This offers a reason for optimism, as the valuation argument becomes more favorable. Thomas Haugaard, a portfolio manager at Janus Henderson Investments, believes that the current overweight in Argentina is driven by valuation rather than a clear baseline scenario.
However, concerns remain about the potential challenges a Milei administration would face, given the likely hostile and divided Congress. Morgan Stanley suggests that it is not yet time to turn bullish on Argentina, despite the recent drop in bond prices. Nevertheless, the potential for a positive outcome remains.
According to Armando Armenta, an analyst at AllianceBernstein, the performance of Milei and Bullrich as signals of demand for change is welcomed by investors. However, the plans and ability of Milei to deliver such change, if elected, remain unclear, tempering the positive impact of the expected outcome.
The upcoming presidential race in Argentina presents both risks and opportunities for investors, with hopes of a more market-friendly government. While the outcome remains uncertain, the country’s bond prices and valuation argument provide reasons for cautious optimism.