The headquarters of the Buenos Aires Stock Exchange, this November 21st. Erica Canepa (Bloomberg)
Argentine markets enthusiastically welcomed the election of ultra Javier Milei as President of Argentina. The Merval index of Buenos Aires shot up by more than 22% this Tuesday, the first working day after the vote in the South American country. It is the biggest daily rise since 1991. Shares on the Buenos Aires stock market rose, driven by energy companies – particularly state oil company YPF, up 38% – and the country’s main banks.
The outgoing government under Peronist Alberto Fernández prevented a sudden devaluation of the official peso exchange rate, as occurred the day after the August 13 primary elections. Instead, he stuck to the path of small planned devaluations, which he carried out a few days before the second round, in which his candidate and Economy Minister Sergio Massa lost. However, the national currency collapsed in free quotation and again exceeded the thousand peso limit. At the end of the day, U.S. currency was exchanged on the streets of Buenos Aires at 1,075 pesos to the dollar.
“The market’s relationship with Kirchnerism has always been contradictory and the end of this economic model is causing great excitement among stock market operators and investors,” says Javier Timerman of Adcap Grupo Financiero. The distrust began with the manipulation of official statistics in 2007 and has never been restored, said the veteran financial analyst.
For Timerman, the financial sector sees positively the reforms promised by Milei, such as a comprehensive fiscal adjustment, the privatization of public companies and the settlement of its debts, especially those that it contracted with the International Monetary Fund in 2018 for $44 billion and refinanced twice. Currently, the greatest doubts remain about the ability to implement the ambitious measures, which include structural reforms in the state, the labor market, healthcare and education. “Macri’s support gives him credibility and political support. I think Milei would have won without his support, but the market reaction would not have been the same,” he adds.
Milei declares himself a libertarian liberal and wants to lift all current restrictions on Argentina’s financial markets. In his first statements after being elected president, Milei confirmed that he plans to privatize all public companies, including the oil company YPF, considered the crown jewel. The market’s interest was immediately noticeable: shares started with a rise of 40% and ended 38% higher than on Friday. YPF’s biggest attractions are its hydrocarbon extraction projects in Vaca Muerta, which has the second largest unconventional gas reserves in the world, and lithium production in the northwest of the country. Other energy companies such as Transportadora de Gas del Norte and Transportadora de Gas del Sur recorded increases of more than 30%.
The meeting between Fernández and Milei this Tuesday was interpreted as a gesture of orderly transition. The government’s decision to continue the slow-motion official devaluation of the dollar suggests that it will do everything it can to maintain this pace in the coming weeks. The futures market also reads it this way: The value of the US currency is trading at a very similar value to the current value at the end of November, but a devaluation of more than 50% is taken for granted in December.
Mateo Reschini, an analyst at Inview, claims that exporting companies expect a significantly more competitive exchange rate once Milei takes office, citing a dozen quotes. Parallels. Reschini emphasizes that it is very difficult to determine the value of the dollar against the peso in a few months, given the huge exchange rate gap that now exists between the official price and the free price. “The gap is big enough that it’s somewhere in the middle. We know that 350 pesos is not worth it, that it is much higher. “The little more than 900 pesos at which the MEP is exchanged is an exchange rate that, adjusted for inflation, is historically very high, but that reflects the complex situation of the country due to the macroeconomic problems,” says Reschini.
For this financial strategist, the rise in the stock market recorded this Tuesday is due to a price adjustment in a market cautious about a possible victory by Massa. Milei’s victory, however, sparked a feeling of euphoria. The evolution of the response will depend on the initial measures taken at the start of the presidency.