Argentine stocks are left behind as earnings growth eludes Milei

Argentine stocks are missing out on a surge in Latin American equities this year as past market euphoria over President Javier Milei’s election victories fizzles out on concern over weak corporate earnings.

After shares soared following Milei’s midterm election success in October, the benchmark Merval index flattened out and then dipped eight percent this year. By contrast, the MSCI Latin America index has rallied more than 20 percent over the same period – its best start to a year since 1994.

Investors have lauded Milei for slashing fiscal spending and slowing Argentina’s rampant inflation, but those successes are yet to translate into a durable surge in profits. While the economy has rebounded from its 2024 recession, growth hasn’t gathered enough momentum to fuel a robust earnings cycle – a challenge for equities already trading at rich multiples, analysts say.

“Stocks need clear evidence of a second phase – sustained economic growth, earnings recovery and greater regulatory predictability,” said Carolina Volman, head of equity and corporate research at brokerage One618. “Equities are still waiting for a growth cycle to emerge that can support a more durable expansion in multiples.”

Even billionaire Stanley Druckenmiller – who praised Milei on CNBC early in his term – has exited his Duquesne Family Office’s position in a leading Argentina exchange traded fund after it hit a record high, reallocating capital to Brazil instead.

Mixed results

Corporate earnings were hit by financial volatility in Argentina last year, compounded by lower commodity prices. Turbulence ahead of the October elections dragged publicly traded banks to their weakest results since the pandemic, with heavyweight lenders such as Grupo Financiero Galicia and Macro posting losses in the third quarter of the year. At the same time, the nation’s loan delinquency rate climbed to the highest in at least 15 years amid a sharp pullback in lending.

Even energy companies – the chief beneficiaries of Milei’s new export-focused growth model – reported mixed results. State-controlled YPF posted a small loss during the third quarter as global oil prices declined, while Pampa Energía reported a roughly 50 percent drop in profits in the first nine months of 2025.

Shares of Argentine-founded MercadoLibre Inc had their biggest intraday drop since 2024 on Wednesday after fourth-quarter net income missed analysts’ estimates. 

“The market rallied very aggressively after the midterms and valuations became a little too punchy toward the end of last year,” said Ola El-Shawarby, an emerging-markets portfolio manager at VanEck. 

Companies in the Merval index trade at a forward price-to-earnings ratio of 19.8, higher than Brazil’s Ibovespa at 13.4, Chile’s IPSA at 15.6 and Mexico’s BMV at 15.9, according to data compiled by Bloomberg. 

Argentine companies are no longer “particularly cheap,” said Ezequiel Fernández, head of corporate research at Balanz. “Validating these valuations requires confidence that earnings will grow strongly this year.”

That has left attention focused on fourth quarter earnings – which started to come out this week – and the outlook for economic growth. On the latter of those two, things aren’t looking good.

The economy is likely to expand two percent in 2026, down from a previous estimate of 3.2 percent, as Argentina enters the year with “slower momentum” according to Bloomberg Economics. That pessimism remained even after a rebound in growth in December.

To counteract sluggish growth, the government is proposing tax incentives aimed at attracting foreign investment and legislation designed to encourage Argentines to bring undeclared savings into the formal economy. It’s also close to securing approval in Congress for Milei’s signature labour reform bill that would ease the notoriously restrictive rules around hiring and firing.

Foreign flows

But there are also specifically market factors that are weighing on Argentine stocks.

Emerging markets have attracted more than US$50 billion in inflows year to date, the strongest such period in years, according to VanEck’s El-Shawarby. Much of that capital has flowed into exchange-traded funds that mirror benchmark weightings, benefiting larger and more liquid markets such as Brazil and Mexico.

Argentina’s equity market remains small relative to regional peers and relatively illiquid, limiting its ability to absorb large passive allocations. Its exclusion from major benchmarks compounds that constraint. 

A potential catalyst would be reclassification by MSCI, which would likely require a long-term removal of capital controls and greater access for foreign investors. 

Net inflows into MSCI Argentina ETF reached about US$630 million in 2024, the largest annual haul in more than a decade, as Milei’s stabilisation drive fueled a front-loaded rally. But the momentum proved difficult to sustain. Roughly US$200 million flowed out in 2025, and outflows did not immediately reverse even after Milei’s midterm win sparked gains.

The removal of capital controls – a key step toward potential re-entry into major emerging-market indexes – remains some distance away, according to analysts. 

“We remain positive on local equities,” Fernández said, “but it may require a bit more patience than we had previously expected.”