A question of margins: PASOs to offer reality check

The primaries on Sunday will offer inves- tors a stark reality check. While the elec- tion only defines which candidates will repre- sent each coalition, they also serve as a giant opinion poll ahead of October’s presidential vote. Should President Mauricio Macri do well, asset prices could boom. Should he do badly and rival Alberto Fernández takes a seemingly unassailable lead, markets could plummet. It’s all a question of margins.

“The widely accepted view is that markets will tolerate a five-percent disadvantage for President Macri” on expectations that re- newed growth will help him revert the deficit, said Siobhan Morden, head of fixed income strategy for Latin America at Amherst Pier- pont Securities.

Here are some of the scenarios:

- Balancing act: four to six points

Should Fernández win by a four to six-per- centage-point margin, the Central Bank will continue its current balancing act – defending the peso with high real interest rates, while trying not to stifle the incipient economic re- covery.

- Rally: less than four points

A narrow difference in favour of Fernández could trigger a rally on speculation that re- newed economic growth will enable Macri to revert the gap.

- Slump: more than six points

“A shortfall of more than six to seven per- centage points relative to Mr. Fernandez could prove an insurmountable obstacle, especially in a highly divisive and polarised political environment,” Goldman Sachs analysts led by Alberto Ramos said in a recent report. “The likely negative market reaction in that scena- rio would certainly complicate the president’s task.”