Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Argentina’s President Javier Milei’s party, La Libertad Avanza, secured a significant victory in the country’s midterm legislative elections on Sunday, a result widely anticipated to bolster investor confidence in his economic reform agenda. The outcome is seen as crucial for maintaining the trajectory of his free-market policies and ensuring continued financial backing from the United States, with analysts forecasting a rally in Argentine bonds and stocks on Monday.
Election Results and Mandate
Official results from Sunday’s legislative elections indicate strong public support for Milei’s free-market reforms and deep austerity measures, which have coincided with a sharp decline in inflation since he took office nearly two years ago. La Libertad Avanza garnered 41.5% of the vote in Buenos Aires province, narrowly surpassing the Peronist coalition’s 40.8% in a region traditionally considered a Peronist stronghold.
This electoral success is expected to pave the way for President Milei to accelerate reforms and reinvigorate his mandate. The victory could enable him to push forward with one of the most ambitious economic overhauls in Argentina’s recent history, a country grappling with persistent cash shortages and high inflation.
Market Reaction and Investor Outlook
Financial markets are poised for a positive reaction, with expectations of an “everything rally” across Argentine assets. Brian Jacobsen, chief economist at Annex Wealth Management, suggested that Argentina’s dollar bonds could challenge their earlier record highs, adding that the election result keeps the country in the “nice” column of President Trump’s “naughty and nice” list.
A key factor in investor sentiment is the pledged support from Washington for Milei’s agenda, which includes a $20 billion central bank swap line and a potential $20 billion loan facility. These funds could be utilized to purchase Argentine debt, providing a significant financial backstop.
Challenges and Opportunities
Argentina’s financial markets have experienced considerable volatility, with bonds, stocks, and the peso undergoing a rollercoaster ride since Milei’s party faced an unexpected defeat in a provincial vote last month. Benjamin Gedan, senior fellow and director of the Latin America Program at the Stimson Center, noted that Milei had primarily governed by executive order, which had previously given investors pause about the long-term sustainability of his policies.
With a stronger legislative position, President Milei now has an opportunity to address deep structural dysfunctions, including the country’s tax and pension systems and labor code. Gedan acknowledged that while it could still be a challenging process, particularly without a quick economic turnaround, the election outcome provides a critical chance for fundamental change.
Currency and Bond Performance
The Argentine peso has faced significant pressure, weakening approximately 25% since partial foreign exchange controls were scrapped in mid-April and nearly 30% since the beginning of the year. Despite a brief strengthening following U.S. Treasury Secretary Scott Bessent’s announcement of U.S. support in late September, the currency recently posted a record closing low of 1,491.50 per dollar.
Argentina’s international dollar bonds rank among the worst-performing emerging market high-yielders this year, having declined nearly 10% year-to-date, a contrast to their more than 100% returns last year. The local stock benchmark, while having rebounded over 20% recently, remains down nearly 30% from its January record high.
Future Reforms and Stability
Investors anticipate that the strengthened position of Milei’s party in the legislature will encourage greater investment, as electoral risk is now diminished until the next general election in 2027. Alejo Czerwonko, CIO for emerging markets Americas at UBS Global Wealth Management, stated that this electoral outcome was largely unpriced by financial markets, and Argentine risk assets should now benefit from increased political stability, a renewed focus on pro-market reforms, and robust U.S. support.
The peso is also expected to rally on Monday, though some investors are looking for a reform to the foreign exchange framework to encourage reserve accumulation. Options under consideration include a wider currency band or a free float of the peso. Karl Schamotta, chief market strategist at Corpay, predicts that Milei’s unexpectedly strong performance will lead to a peso rally and smooth the path for more comprehensive economic reforms in the coming months.
