LONDON, Nov 21 (Reuters) – Investors were buckling up on Tuesday as Argentina’s local markets prepared to reopen after the weekend’s presidential election win of radical libertarian outsider Javier Milei.
Argentina’s markets were closed on Monday following Sunday’s vote, but there were major moves in assets traded internationally. U.S.-listings of Argentina companies rallied sharply, including a 40% surge in main energy giant YPF (YPFD.BA) after Milei said he would look to privatize it.
Early U.S.-premarket indications pointed to the stocks rally having room to run. International bonds were climbing for a second straight day, marking gains of as much as 0.6 cents with issues being bid between 29-34 cents, MarketAxess data showed.
With Milei promising to deliver economic shock therapy to the long-troubled economy, Tuesday’s action was set to be dominated by how fast and furiously the official peso rate drops.
The currency’s overvaluation is seen as being at the heart of the country’s economic strife. There is a gaping chasm between the official government rate and where it trades on the streets.
Morgan Stanley’s analysts said on Monday they expected it to drop 80% over the next six weeks. Milei said in the runup to the election he wanted to ditch the peso altogether in favour of the dollar and shut down the central bank, too.
“The big question is obviously what happens to the currency now given Milei’s comments before the elections,” said Viktor Szabo, an emerging market portfolio manager at Abrdn in London.
“The black market is far away from the official rates so some adjustment needs to happen. The issue is how quickly that happens.”
TRADING THE PESO
One of the few ways both locals and internationals have been able to trade the peso over the last 48 hours has been in cryptocurrency markets which trade 24 hours a day, albeit in tiny volumes compared to traditional foreign exchange.
One tether – a cryptocurrency pegged to the U.S. dollar – was trading at 960.3 pesos, up 1% on the day, according to the crypto exchange Binance’s website, although it was well off the pair’s high of 1,120.4 seen on Sunday.
On equities, pre-market U.S. trading data indicated the Global X MSCI Argentina ETF – which offers exposure to a basket of Argentina’s most liquid stocks – rising 1.3%, after jumping over 11% on Monday, which had been its highest since early September.
Net assets of the fund rose $6 million to $61.9 million by close on Monday, according to LSEG Lipper data, though the vehicle did show outflows.
U.S.-listed shares, known as “depository receipts”, of Argentine banks had also rallied. Banks Grupo Supervielle was indicated another 3.5% higher after the stock as well as other banks such as Banco Macro, Banco BBVA Argentina and Grupo Financiero Galicia had closed up between 17-24% on Monday.
Milei, who will take office on Dec. 10, did not refer to “dollarization” in his first speech, raising questions about how quickly he might pursue scrapping the peso entirely.
He has pledged wholesale economic change for the battered economy, where inflation is at 143% and set to spiral as the peso devalues. FX reserves are depleted and currently more than $10 billion in the red.
Milei had also heavily criticised China and Brazil in the runup to the elections, two of Argentina’s main trading partners. China said on Tuesday it would be a “serious mistake” if Milei opted to cut ties between the two countries.
Reporting by Marc Jones, additional reporting by Elizabeth Howcroft, Bansari Mayur Kamdar and Karin Strohecker;
Editing by Bernadette Baum and Emelia Sithole-Matarise
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