Argentina's stocks rally as opposition gains ground on Fernández

Argentine stocks are jumping amid growing speculation that allies of President Alberto Fernández are poised for a poor showing in midterm elections scheduled for November.

The benchmark equity index surged 16 percent this month in pesos, trailing only Mongolia among more than 90 stock gauges tracked by Bloomberg. Argentine shares have jumped 49 percent this year, among the world’s top five performers.

The S&P Merval index extended gains this month amid growing signs that the Peronist leader's left-leaning Frente de Todos coalition is losing ground, culminating this week in an election for governor of Corrientes Province where Fernández’s candidate lost by 50 percentage points. Investors believe that any of Argentina’s major opposition parties would fight against policies advocated by the current government, which has used foreign-exchange restrictions, price freezes, export bans and other unorthodox tactics to try to spark economic growth.

“Argentine shares are very cheap,” said Alberto Bernal, chief strategist at XP Investments in Miami. “If the government doesn’t do well in the midterm elections, the chances of a change in policy increases, and that drives prices.”

Political turmoil is increasing in the weeks leading up to the elections to select half of the lower house Chamber of Deputies and a third of the Senate. Earlier this month, pundits pounced on a photo that surfaced showing a crowded birthday party held for the first lady at the height of the pandemic lockdown in 2020. A recent poll by local firm Synopsis found that Fernández’s negative image had increased to over 70 percent in August, from 63 percent in July. 

While Argentine stocks have surged this year when measured in pesos, the performance is much less impressive when accounting for depreciation on the parallel foreign-exchange market that investors often use to skirt controls. Measuring in those terms, the Merval is up just 21 percent this year.

Emerging-market equities, including those in Argentina, also benefitted this month from dovish comments by Federal Reserve Chairman Jerome Powell at a policy forum. The political outlook provided an extra lift. 

“Investors are watching the latest electoral results,” said Francisco Choe, a portfolio manager at Banco Galicia’s FIMA Funds in Buenos Aires. “Argentina is high beta, and it responded forcefully to the Fed’s dovish tapering message. But it seems the investors are also jumping on the train of electoral expectations.”