Argentina markets jump as investors bet vote result will boost reform agenda

BUENOS AIRES (Reuters) - Argentine currency, bonds and stocks rose early on Monday following a sweep by President Mauricio Macri’s coalition in midterm elections, as investors bet the result would help him get his business-friendly reform agenda through Congress.

While the “Let’s Change” coalition will remain a minority in the Senate and lower house, as expected, its defeat of populist former President Cristina Fernandez in the Senate race in the bellwether province of Buenos Aires should help in negotiations with opposition lawmakers, analysts said. [nL2N1MX09T]

Fernandez still won a seat under Argentina’s electoral list system, but the result left the opposition Peronist movement divided. Investors expect that will help Macri pass his 2018 budget, which aims to cut the fiscal deficit by one percentage point to 3.2 percent of gross domestic product, along with tax, labor and capital markets reforms.

“We are in a stage of permanent reform,” Macri told reporters on Monday morning. “Argentina does not need to stop, and does not need to be scared of reforms.”

As of 11:44 a.m. local time, the peso currency was up 0.7 percent at 17.29 per dollar, while the Merval stock index was up 2 percent at 27,535 points after touching a record high.

Country risk, a JPMorgan index of Argentine bond yields, fell 12 basis points to 337 points. Bond prices on average were up 1 percent, while the 100-year bond sold in June was up 2.1 percent at $105.50.

“[The result] allows the government to win consensus with the opposition more easily to advance its agenda,” said Delfina Cavanagh, Buenos Aires-based director for sovereigns and sub-sovereigns at ratings agency S&P, which rates Argentina’s debt ‘B’ with a stable outlook.

“The opposition is quite divided and that gives the government a greater capacity to negotiate with the different factions of Peronism.”


Since taking office in December 2015, Macri has sought to unwind the macroeconomic imbalances he inherited from Fernandez by letting the peso currency float, cutting export taxes on grains and reducing utility bill subsidies.

Those measures contributed to inflation and recession last year, forcing Macri to tread lightly to avoid a political backlash.

Let’s Change won 41.7 percent of the national vote, meaning Macri lacks the political capital to accelerate the pace and intensity of reforms, said Edward Glossup, chief Latin America economist at Capital Economics in London.

“It’s still very clear that he’s unpopular with large swaths of the electorate,” Glossup said.

Macri’s coalition was set to pick up 21 seats in the lower house and 9 in the Senate, reaching one-third in both chambers. That would enable it to block any opposition attempt to override a Macri veto.

That result signaled predictability to companies considering longer-term investments, said Ricardo Lalor, managing partner of investment bank Buenos Aires Capital Partners. He said he expected companies’ debt issuance to increase, along with initial public offerings and follow-on share sales.

“It is going to intensify a lot after yesterday’s result,” Lalor said. “From here on out, investments will increase.”

Additional reporting by Jorge Otaola, Walter Bianchi and Hernan Nessi; Editing by Chizu Nomiyama and Meredith Mazzilli