The equities rally
In a pivotal moment during the Argentinian elections, Javier Milei secured the presidency, defeating former Finance Minister Sergio Massa and reshaping the political landscape.
Argentina's local markets reopened on Tuesday after the holiday, with investors focusing on Milei's propositions to reduce spending, eliminate the central bank, and dollarize the economy.
Argentina’s flagship index, The S&P Merval stock index (MERV), which seeks to measure the performance of the largest and most liquid domestic stocks rose 23%, led by a 40% surge on Wall Street of the state oil company YPF (YPFD.BA). Catching up with a sharp rise in its U.S.-listed stock on Monday, Milei has suggested the possibility of privatizing the company.
"The big question is obviously what happens to the currency now given Milei's comments before the elections" Viktor Szabo emerging markets portfolio manager at Abrdn.
The currency
Arguing the peso isn’t stable enough as it presents a low demand and an extremely high supply, which has led to annual inflation of 143%, Milei aims to dollarize the country´s economy and “burn the Argentinian central bank” accusing it of being a rampant money printing machine that finances government overspending.
Now, Argentinian citizens, aware that more peso declines will boost the price of consumer goods, people are watching for indications of how Milei's victory on Sunday will affect the currency's value, which has plummeted in value over the past year.
But regarding a long-term outlook for the Argentinian peso, Morgan Stanley analysts argue that the peso will drop 80% over the next six weeks, and Goldman Sachs economists report that “As with everything in economics, there is no free lunch, and adopting, preserving and benefiting from dollarization could be challenging.”
All in all, the aftermath of Milei's win is poised to redefine Argentina's economic trajectory and policy landscape.
“We’re talking about a very precise operation. So, if it is done right, it will be a huge economic boom in Argentina. Very positive”
Written by: Alfonso Egaña
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