Introduction

Argentina’s markets are experiencing an election hangover following a surprising victory in the primary elections by far-right libertarian candidate Javier Milei. This unexpected win has caused a stir in the race towards the general elections in October.

Milei’s Performance

Javier Milei, a rock-singing economist known for his wild hair, outperformed expectations by receiving around 30% of the vote with over 90% of the ballots counted. This makes him the candidate with the largest vote share.

Primary Elections and Market Impact

The primary elections serve as a dress rehearsal for the general elections in two months. Market expectations were for a strong performance by more moderate candidates, who unfortunately had a disappointing night. As a result, the peso currency in popular parallel markets could weaken on Monday, and bonds, which had been rising in recent weeks, may be negatively affected.

Dante Sica, a consultant and former production minister, expressed concerns about the unexpected numbers from Milei, stating that the government will need to closely monitor the exchange market as tensions are likely to rise.

Argentina’s Volatile Markets

Argentina’s markets have been unstable for a long time due to years of economic crisis. A similar shock result in the 2019 primary elections led to a crash in bonds and the currency, which continue to remain in a distressed state. The peso has been held in check by government-imposed capital controls, which they have been unable to remove.

Market Confidence and Milei’s Win

Milei’s victory adds another element of uncertainty that could impact market confidence. However, this could be mitigated by the fact that he still faces a tough fight in the October elections and a likely November run-off. These upcoming challenges will test his ability to gain support from more voters.

According to Goldman Sachs, Milei supports more radical policy proposals, such as dollarization and significant spending cuts. His lack of an established political machine brings additional uncertainty.

Upcoming Three-Way Race and Potential Run-off

In the October elections, Milei will compete against former security minister Patricia Bullrich, who secured the main conservative Together for Change nomination, and Peronist coalition candidate Economy Minister Sergio Massa. To win outright, a candidate needs to secure 45% of the vote or 40% with a 10-point lead over the second-place candidate. If no outright winner emerges, a head-to-head vote between the top two candidates will be held in November.

Conclusion

The unexpected election results have left Argentina’s markets in a more uncertain scenario than anticipated. Ricardo Delgado, director of the Argentine economics consultancy Analytica, highlights the increased uncertainty caused by Milei’s victory.