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ECONOMY | 27-06-2023 08:53

Argentina investors say Massa optimism offers brief respite

Argentine bonds among biggest gainers in emerging markets after the ruling Peronist bloc coalesced around Economy Minister Sergio Massa.

Argentine bonds were among the biggest gainers in emerging markets Monday after the ruling Peronist bloc coalesced around the centrist Economy Minister Sergio Massa as its main candidate.

The pick — which sent notes due in 2030 up two cents to 32 cents on the dollar, the highest since early March — is being seen as increasing the odds the country ushers in a pro-business administration.

But while Massa is seen as a proponent of market-friendly policies, including a finalised International Monetary Fund deal, it’s unclear how quickly he’ll be able to spur change and solve the nation’s lingering financial troubles.

Money managers are closely watching this October’s presidential election for clues on how the incoming government plans to fix an economy dragged down by triple-digit inflation, an unstable currency and simmering social discontent.

“The odds of a bad outcome are definitely lower,” said Natalia Gurushina, an emerging markets fixed-income economist at Van Eck Associates. “The question is whether this optimism can last. ‘Pro-market’ does not necessarily mean speedy and/or adequate reforms.”

Optimism over a market-friendly outcome in the October election grew as leftist Interior Minister Eduardo 'Wado' de Wado dropped out of the race, a move that stands to boost Massa’s campaign. The shift in the party’s backing is seen weakening the influence of Vice-President Cristina Fernández de Kirchner, who leads the coalition’s far-left wing.

The Merval stock index added as much as 5.2 percent in local-currency terms on Monday, extending its year-to-date gains. 

Here’s what others on Wall Street are saying: 

Patrick Esteruelas, head of research at Emso Asset Management:
– “The impact of Massa’s candidacy is mixed. On a more positive note, he is regarded as a Peronist ‘with good manners,’ which reduces the tail risks around a potential Peronist government and increases the recovery price floor”
–– “However, a more united and cohesive platform should make the Peronists more competitive and allow them to retain the Province of BA and defend seats in Congress even while losing the presidency, which could make future governability more challenging for the opposition

Pilar Tavella, an economist at Barclays: 
– “The confirmation of Massa as presidential candidate reinforces our baseline scenario that the government and the IMF should reach a deal for a new programme within the next few weeks”
– “Massa’s strengths are diluted by the state of the economy. A possible advantage of Massa’s candidacy for the government coalition is that he could potentially grab a larger share of the votes in the centre in a run-off than a pure Kirchnerite candidate would”

Alberto Rojas, an economist at Credit Suisse:
“While it’s understandable to see some optimism in market participants owing to recent developments regarding the presidential candidacies, this positive effect will likely be short-lived”
– “Imbalances have in fact deepened with the current economic cabinet at the helm. Argentina’s fundamental problems are still there”

Fernando Losada, a managing director at Oppenheimer & Co.: 
– “Massa’s confirmation as a candidate suggests that the most extreme alternatives within the ruling party will not prosper, which is a welcome development”
– “However, his candidacy presents some unknowns, since it is not clear for how long he will continue to be a minister and how he will divide his time between the role of minister and the presidential campaign”

Malcolm Dorson, senior portfolio manager at Global X Management:
“It appears that voters want change. Are they going into the ballot saying ‘I’d like fiscal orthodoxy?’ Probably not, but they want to step away from Fernández de Kirchner and Peronism”
– “I don’t think Massa is the most likely candidate to win (tough to vote for the finance minister carrying 100 percent inflation), but it seems like all viable options are more economically reasonable candidates than the status quo”

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by Vinícius Andrade & Ignacio Olivera Doll, Bloomberg


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