Wednesday, May 25, 2022

ECONOMY | 19-05-2019 23:42

Investors to focus on the peso after CFK's shock VP announcement

Cristina Fernández de Kirchner’s announcement won’t immediately change demand for Argentine assets, but it might give some short-term relief to the peso, according to experts.  

Argentina’s peso, the worst-performing emerging-market currency this year, could see more volatility as investors learn how to connect the latest pieces of the country’s complex political puzzle.

In a surprise announcement on Saturday, former president Cristina Fernández de Kirchner said she would run as vice-president in the country’s upcoming elections. She’ll be on the same ticket as Alberto Fernández, a veteran politician and former Cabinet chief who is aligned with a moderate wing of the influential Peronist movement.

Analysts are now trying to determine whether the pair will be able to beat President Mauricio Macri, who is running for re-election and is seen as more market friendly. Fernández de Kirchner is a vocal critic of the billions of dollars in debt Argentina has accrued in the last three years, much of which is owned to the International Monetary Fund.

So far this year, the peso has slumped by about 16 percent against the US dollar and equity assets have been shaky.

The currency will likely remain volatile following Fernández de Kirchner's decision to run as vice-president, according to Hasnain Malik, the Dubai-based head of equity strategy at Tellimer. “Argentina stocks reflect a lot of the top-down risks already,” he said.

While Fernández de Kirchner’s announcement won’t immediately change the demand for Argentine assets, it might give some short-term relief to the peso as investors wait to hear more from her and Fernández, according to ADS Investment Solutions.  

More from Tellimer’s Malik:

  • “It is not clear that there are alternatives to austerity and the IMF programme for Argentina, and this move may confirm that the main moderate Peronist candidates see it that way too”.
  • Argentina’s stocks could still do well “if global conditions are sufficiently benign and the Peronists remain too divided to win.”

Ashish Marwah, chief investment officer for asset management at ADS Investment Solutions in Abu Dhabi:

  • Any gains in the peso following Fernández de Kirchner’s announcement would likely be “relatively short-lived”
  • The “backdoor bid” by Fernández de Kirchner to return to power “should actually worry markets because now she can push her agenda in the background,” despite Alberto Fernández recently being opposed to her policies
  • In the short-term her decision may come as a relief since an eventual break from the Peronists with the IMF program is reduced
  • He doesn’t see Fernández de Kirchner’s announcement as immediately changing demand for Argentine assets, though it “may relieve some selling pressure as investors wait to hear more” from her and Fernández

Marcin Lipka, senior analyst at brokerage in Warsaw

  • Overall, “the message seems to be good regarding Fernández de Kirchner’s decision, but the problems remain and the economy is ineffective”
  • He says the greatest burden to Argentina’s economy comes from Fernández de Kirchner’s previous presidency, “but it’s been four years since Macri is in power and gradualism hasn’t succeeded”
  • He expects the peso to trade at about 50 per US dollar in the 1Q of 2020, even if Macri manages to be re-elected
  • That’s despite the “full scale” foreign-exchange intervention policy from the central bank and also considering the maintenance of the IMF’s credit line, “which is substantial”

by by Filipe Pacheco, Bloomberg

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