© Reuters. FILE PHOTO: Supporters of Argentine President-elect Javier Milei celebrate after Milei won the second round of the presidential election, in Buenos Aires, Argentina, November 19, 2023. REUTERS/Adriano Machado/File Photo
By Marc Jones, George Otaola and Walter Bianchi
LONDON/BUENOS AIRES (Reuters) – Argentina’s black market peso fell 12% on Tuesday to 1.045 per dollar, on the first day of trading after libertarian Javier Milei won the country’s presidential election, while stocks and bonds rose on hopes of a more market-friendly economy. economic policy.
Argentina’s local markets reopened after a holiday Monday, with investors focusing on Milei’s call to cut spending after he won the weekend presidential election.
The local S&P Merval stock index rose 23%, led by a nearly 39% rise in shares of state energy company YPF, catching up with a sharp rise in its US-listed shares on Monday. Milei has hinted that he could privatize the company.
However, Milei’s dollar plans, which may include a sharp devaluation or even parallel use of the peso and the US dollar, are putting pressure on the beleaguered local currency. The official exchange rate is close to 356 per dollar, maintained by strict capital controls. A move to the black market exchange rate of 1.045 would imply a devaluation of close to 66%.
Milei has promised to offer economic shock therapy to an economy that has long been in trouble, with the overvaluation of the peso considered the center of the country’s economic conflict.
“Argentina is facing a major policy shift, reinforcing its track record of profound policy shifts alongside government changes,” analysts at S&P Global Ratings said in a note Tuesday.
Milei had also harshly criticized China and Brazil, two of Argentina’s main trading partners, in the run-up to the elections.
Morgan Stanley analysts said Monday they expected the peso to fall 80% over the next six weeks. Milei, in the run-up to the election, said she wanted to completely ditch the currency in favor of the dollar, although she has backed off.
“The big question is obviously what happens to the currency now, given Milei’s comments before the election,” said Viktor Szabo, emerging markets portfolio manager at Abrdn in London.
“The black market is very far from official rates, so some adjustment needs to be made. The question is how quickly it will happen.”
Milei, who will take office on December 10, did not refer to “dollarization” in his first speech, raising questions about how quickly he could scrap the peso.
He has promised a total economic change for the battered economy, with inflation at 143% and about to skyrocket as the peso devalues.
International bonds rose for the second day in a row on Tuesday, posting gains of up to 1.7 cents on the 2029 note. The six restructured dollar bonds were trading above 30 cents and as high as 35 cents on the dollar.
In stocks, the Global X MSCI Argentina ETF fell 0.4% after jumping more than 11% on Monday. The 22.8% gain in the local Merval was the largest daily percentage increase recorded, according to LSEG data.
Shares of Argentine banks listed in the United States maintained most of their gains from Monday.
