By Rodrigo Campos
NEW YORK (Reuters) -Argentina’s bonds and stocks are expected to rally on Monday after President Javier Milei’s party won an overwhelming victory in a crucial midterm election, a key requisite to keep economic reforms on track and a U.S. financial backstop in place.
Early results in Argentina’s Sunday legislative elections show voters strongly backed Milei’s free-market reforms and deep austerity measures, with inflation falling sharply since he took office nearly two years ago.
The president’s party, La Libertad Avanza, received 41.5% of the vote in Buenos Aires province compared with 40.8% for the Peronist coalition, according to official results. The province has long been a political stronghold for the Peronists, marking a dramatic political shift.
The results could clear the way for Milei to enact faster reforms and reinvigorate his mandate to push ahead with one of the most ambitious economic overhauls in the cash-strapped and inflation-ridden country’s recent history.
“The scale of Milei’s victory ranks at the most optimistic end of pre-election expectations,” said Alejo Czerwonko, CIO for emerging markets Americas at UBS Global Wealth Management. “Milei is now able to move forward with an ambitious deregulation agenda, pursue labor, tax, and potentially social security reforms in Congress, and implement changes to Argentina’s FX regime.”
Some investors had said before the vote that they expected gains of as much as 15% in Argentina’s dollar bond prices if Milei’s party put in a strong showing.
Argentina’s bonds and stocks and the embattled peso have been on a rollercoaster ride in recent weeks.
The peso has weakened some 25% since mid-April’s partial scrapping of foreign exchange controls, and close to 30% since the start of the year.
It strengthened more than 10% to the dollar in the week after U.S. Treasury Secretary Scott Bessent first announced U.S. support for the Argentine economy in late September, but has since weakened again. On Friday, it posted a record closing low of 1,491.50 per dollar.
Argentina’s international dollar bonds are among the worst-performing emerging market high-yielders this year, down nearly 10% year-to-date. They had returned more than 100% to investors last year.
The local stock benchmark last month touched its lowest in a year. While it has since risen more than 20%, it is down nearly 30% from a record high set in January.
A stronger position for Milei’s party in the legislature will encourage more investment, investors have said, as electoral risk is now receding until the next general ballot in 2027.
Also at the top of investors’ minds is a pledge from Washington in support of Milei’s agenda through a $20 billion central bank swap line and a potential $20 billion loan facility that could be used to purchase Argentine debt.
Investors still expect a reform to the foreign exchange framework that would encourage the accumulation of reserves, with a wider band or a free float of the peso among the options.
The currency has been allowed to float in a widening band since an agreement with the International Monetary Fund for a $20 billion loan program in mid-April. Argentine Finance Minister Luis Caputo stood firmly by the current band in the weeks ahead of the election but the peso has come under increasing pressure, despite market interventions from both the U.S. and the Argentine treasuries.
(Reporting by Rodrigo Campos; Additional reporting by Saqib Iqbal Ahmed; Editing by Rosalba O’Brien and Edmund Klamann)
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