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ECONOMY | 15-08-2023 14:05

Argentine assets extend sell-off after vote surprise roils markets

Argentine assets extend losses as strong support for outsider Javier Milei in a weekend primary vote reverberates through markets.

Argentine assets extended losses as strong support for outsider Javier Milei in a weekend primary vote reverberates through markets. 

Bonds due in 2030 fell as much as one cent to 31.8 cents on the dollar in New York trading. Notes due 2035 and 2046, some of the country’s most liquid, also dropped. 

The debt, which already trades in deeply distressed territory as Argentina battles triple-digit inflation, a looming recession and a currency crisis, led losses in emerging markets on Monday as traders scrambled to understand Milei, a candidate most investors didn’t consider as a serious contender until now. 

Trading volume for the country’s sovereign bonds skyrocketed: notes due in 2030, for example, traded 45 times on Monday, compared to 147 times for the entire past month, according to Trace data. A US-listed exchange-traded fund saw over US$16.5 million of turnover on Monday, the most in almost four years, according to data compiled by Bloomberg.

While there’s no requirement for reporting trades in dollar-denominated foreign sovereign debt securities, the data signals a rush to price in a different scenario than investors were expecting for the South American nation. 

To cope with the pressure of the market fallout, the government — which has drained reserves to defend the currency — devalued the official foreign exchange rate by 18 percent. The devaluation, which investors had long been bracing for, was accompanied by a 21 percentage point interest rate hike that pushed Argentina’s borrowing costs to 118 percent. 

Argentina also intends to ask the International Monetary Fund to increase a disbursement planned for later this month by an unspecified amount, a senior government official said late on Monday. The IMF has agreed to give the country as much as US$10.8 billion in loans for the rest of the year as part of a refinancing agreement brokered by Economy Minister Sergio Massa, who’s also running for president.

On Tuesday, Milei told a local ratio station his team is in talks with IMF officials for a meeting, adding that his plan is “much tougher” than the current agreement with the fund. 

Milei, a drain-the-swamp populist, captured about a third of votes cast in the primary election on Sunday, which is seen as a barometer for October general elections in Argentina, where polls are largely unreliable. 

The strong support for the deputy, a political outsider, has sparked concern the economic crisis is set to deepen as uncertainty on the outcome of the vote lingers. 

“The presidential election on October 22 is still wide open, although Milei now emerges as the clear frontrunner,” UBS economists led by Rafael De La Fuente wrote on a Monday note. 

by Carolina Wilson, Bloomberg

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