(Bloomberg) -- Mauricio Macri’s poor showing in primary elections on Sunday will likely trigger a major selloff across Argentina’s assets come Monday morning.
Opposition candidate Alberto Fernandez and his running mate, former President Cristina Fernandez de Kirchner, won by a much wider-than-expected margin over Macri, worrying investors who were already trimming exposure to Argentine assets. The result of the primaries, a key gauge of voter intentions ahead of the Oct. 27 election, will likely be seen as a signal that the country may look to return to policies such as currency and capital controls, steering away from Macri’s more market-friendly positions.
“The market will likely price this as it is a done deal that Alberto Fernandez won,” said Carolina Gialdi, senior fixed income strategist at BTG Pactual Argentina in Buenos Aires. “For markets, this is very negative.”
The peso could lose 25% of its value on Monday, while bonds could slump around 20% on the results as markets price in a full peronist win in October, Gialdi said. It’ll be a sharp turnaround from Friday, when bonds and locally traded shares gained amid optimism about Macri’s chances.
In a press conference Sunday evening, Macri said he had “a bad election,” and that his coalition would work to change the trend. The president declined to say if he’ll announce special measures to calm markets or boost the country’s economy ahead of the first round vote.
With 84% of ballots counted, Alberto Fernandez had 47% of votes versus 32% for Macri. Pollsters have long said that Macri would have trouble overcoming defeat by a margin of more than seven percentage points, and analysts had said a difference of more than six points would likely spark a selloff in the country’s assets.
Here’s what money managers and analysts are saying:
Siobhan Morden, head of fixed income strategy for Latin America at Amherst Pierpont Securities
- “I don’t know what Macri could do. The best you could hope for is that Fernandez is moderate”
- Markets will likely “panic” Monday, and bond prices could plummet as investors start to discount a high probability of default
- “The burden is now on Fernandez to calm markets or inherit a country that is ungovernable”
- Results are “unexpected” based on polling, which saw a much smaller gap between the candidates
- Discussion was about “a few points of difference between the main candidates. The Fernandez victory instead was a landslide”
- The central bank will probably not intervene even if there’s a 30% drop in the currency because “it would be a massive waste of international reserves, which only makes things worse” and could put more pressure on the currency
- Baker has been bullish on Argentina since September and said more information is needed before she changes her stance, but that “it’s clearly more negative”
- Will be watching if “the reaction to this going to be enough in and of itself to cement a Fernandez win”
- If markets react very negatively, “that will be bad for the incumbent from a macro standpoint -- currency weakness could halt the disinflation and we’re counting on a continuation of the macro improvements going into the election”
- “On the other hand, a severe market reaction could give the electorate a taste of what they’re in for if they elect the Peronist ticket, and we know they’re very clued into the currency. If there’s an outsized reaction they may think hey, this is actually us going backwards”
- There’s a potential difference in voter turnout between the primary and the October election, and votes will be more consolidated between the main candidates then
- Expects the central bank to be in the currency market if there’s substantial pressure
- Macri’s double-digit loss is “definitely not going to be good for markets”
- Still, a Fernandez win does not equal default, and Barrineau will be watching for an economic policy and flexibility with the IMF
- Peso is likely to get hurt but central bank has ability to support it; still, people don’t want to see a full week of a weaker peso and the central bank spending dollars to support it
- Bonds will give back Friday’s rally
- “I wouldn’t expect things to go out to 13, 14 or 15% yield in short-dated bonds because market was already cautious on election”
- “I wouldn’t expect the bottom to fall out here, but we’re going to clearly adjust for a higher probability of Fernandez winning if these results hold”