Argentine dollar bonds reversed earlier losses on Monday as investors digested the surprise news that former president Cristina Fernández de Kirchner will run as a vice-president with a more moderate candidate in October’s election, rather than seek the top job herself.
After falling as much as 0.8 cents early Monday, bonds pared most of their losses by the end of trading with some securities even gaining a cent. The yield spread over US Treasuries narrowed 30 basis points. Bonds issued under Argentine law underperformed, while New York-law debt ended higher. The peso closed 0.4 percent lower and stocks ended higher.
While some investors stressed that the opposition Peronist movement was now more likely to win the election, others argued Fernández de Kirchner’s decision is a slight positive because it reduces the odds she’d reverse President Mauricio Macri’s market-friendly policies if she won the vote.
"It takes away the risk that you have a problem with a more aggressive Cristina," said Andrés Vilella Weisz, portfolio manager at Balanz Capital in Buenos Aires. "Any move by Cristina distancing herself from the presidency is marginally positive for Argentine assets."
Fernández de Kirchner’s running mate, Alberto Fernández, is a career politician with no experience on the national ballot. Still, he has broader appeal in the amorphous Peronist movement, where Kirchner’s left-wing, polarising positions created divisions and the possibility of rival candidates.
Govern by proxy
Fernández de Kirchner’s move is a push to convince voters that with Fernández heading the ticket, the pair would be more moderate, giving them a better chance of beating Macri, said Daniel Kerner, managing director for Latin America at Eurasia Group.
The announcement took markets by surprise. Fernández Kirchner was already leading Macri by a razor-thin margin in presidential polls. In theory, she had a chance to win on her own. It also raised questions as to how much influence Fernández de Kirchner would yield if her ticket wins and whether or not she would govern by proxy.
To some, Fernández de Kirchner’s decision to run as a vice-presidential candidate acknowledges the limits of her presidential bid. She faces multiple corruption cases, and top officials from her former government are behind bars on graft charges. Her second term, which finished in late 2015, was also marked by a default, high inflation and unpopular economic policies.
"Nobody resigns to a presidential future out of strength, but out of weakness: the announcement is a sign of weakness by Cristina [Fernández de] Kirchner," said Marcos Buscaglia, an economist at consulting firm Alberdi Partners in Buenos Aires.
Fernández, 60, served as cabinet chief to Fernández de Kirchner’s late husband Néstor, who was president from 2003 to 2007.
“His main advantage is his moderate speech: he is market-friendly and anti-default,” said Sergio Berensztein, a local political analyst.
The next government’s top economic priorities should be the country’s debt, inflation, and the fiscal deficit, Fernandez said in an interview with local newspaper Ámbito Financiero. He said that entering debt talks with private bondholders was seen as a more feasible scenario than doing so with the International Monetary Fund, which gave Argentina a US$56-billion credit line.
Fernandez added that capital controls were not a "good solution" because they blocked dollar inflows.
Roberto Lavagna, an economist who was preparing to run for president under another Peronist group, confirmed that he will continue his push despite Kirchner’s announcement.
For now, Macri’s team is treating Fernández de Kirchner’s announcement as a cosmetic change and still plans to campaign against her as if she were the main candidate. Investors still seem to be digesting the news.
"Everything is up in the air," said Patrick Esteruelas, head of research at EMSO Asset Management. There’s "more questions than answers. Cristina has kicked the table but we don’t exactly know how the pieces will fall."
by by Patrick Gillespie and Jorgelina do Rosario, Bloomberg