Wall Street Convinced Argentina’s President Macri Is A Goner

Argentina Primary Elections

Argentine President Mauricio Macri, who is running for reelection, was snubbed by voters who appeared to hand a resounding primary victory to a populist ticket with his predecessor, Cristina Kirchner.

AP Photo/Natacha Pisarenko

After Sunday’s trouncing in a mandatory primary vote that gave every a good sense of the October presidential election odds for Argentina’s incumbent, Maurico Macri, Wall Street is now fairly convinced the guy is a goner.

The peso fell 30% on the news of his lackluster performance but recovered and ended the day only 15% weaker to settle at 53 to the dollar. Default risk rose to 70% odds that a new Argentine government defaults yet again, this time, perhaps, on the $56 billion International Monetary Fund package holding the country together with duct tape and stitches.

As one salty emerging markets fixed-income analyst told me in a personal conversation yesterday in New York, Macri has no chance.

A weaker currency means the Central Bank either has to use IMF funds or its dwindling reserves of a mere $18 billion to stop the bloodletting. The deeper the peso goes into the 50s, the higher the inflation rate.

Alberto Fernandez is in the pole position. Macri needs an economic miracle, or a gaffe by Fernandez and his running mate, the hyper-polarizing ex-president Cristina Kirchner.

The Fernandez-Kirchner ticket garnered 47.7% of the vote, significantly ahead of Macri and his moderate Peronist running mate, Miguel Angel Pichetto. The two of them polled at 32.1%.

Macri’s economy failed to lift off in his four years in office. People are longing for some sense of stability, even if it means the quasi-socialist, closed-door policies of the Kirchner era.

Everyone was surprised by Sunday’s results.

The majority of opinion polls in the weeks prior to the primary elections had the gap between the two candidates at less than 8%, with some polls predicting more votes for Macri.

The pollsters are wrong, even in Argentina, where this race now looks like Fernandez's race to loose. He is now in a strong position to win the first round of the presidential elections on October 27, 2019.

Fernandez has historically been associated with the more pragmatic elements of the Peronist party, so some in the market think better days are ahead after the initial transfer of power.

For example, he resigned from the Cristina government in July 2008 in protest of the administration’s approach to the agricultural sector.

But most people voting for Fernandez are really voting for Cristina, suggesting she will at least have some say of control of the economic levers.

“We think it is likely that she will have a fairly high degree of influence on economic policy, at least in the immediate aftermath of an election victory,” says Brett Diment, head of emerging markets debt at Aberdeen Standard Investments.

Investor concerns about capital controls and the ability or willingness of a new incoming administration to continue with the IMF program led to yesterday’s sell-off.

“We'll continue to monitor the situation closely in Argentina, particularly with regard to the likely policy moves of an incoming Fernandez-Kirchner administration,” Diment says.

There is also little or anything Macri can do over the next two months to alter voter trends, Siobhan Morden, head of Latin America fixed income for Amherst Pierpont Securities, wrote in a note to clients on Monday.

The economy is weak. The IMF is hated. Macri’s odds of winning are slim as he faces the backlash of four years of deteriorating wealth for most Argentines. A lot can change between now and October 27, but the odds are not looking good for Macri.

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After Sunday’s trouncing in a mandatory primary vote that gave every a good sense of the October presidential election odds for Argentina’s incumbent, Maurico Macri, Wall Street is now fairly convinced the guy is a goner.

The peso fell 30% on the news of his lackluster performance but recovered and ended the day only 15% weaker to settle at 53 to the dollar. Default risk rose to 70% odds that a new Argentine government defaults yet again, this time, perhaps, on the $56 billion International Monetary Fund package holding the country together with duct tape and stitches.

As one salty emerging markets fixed-income analyst told me in a personal conversation yesterday in New York, Macri has no chance.

A weaker currency means the Central Bank either has to use IMF funds or its dwindling reserves of a mere $18 billion to stop the bloodletting. The deeper the peso goes into the 50s, the higher the inflation rate.

Alberto Fernandez is in the pole position. Macri needs an economic miracle, or a gaffe by Fernandez and his running mate, the hyper-polarizing ex-president Cristina Kirchner.

The Fernandez-Kirchner ticket garnered 47.7% of the vote, significantly ahead of Macri and his moderate Peronist running mate, Miguel Angel Pichetto. The two of them polled at 32.1%.

Macri’s economy failed to lift off in his four years in office. People are longing for some sense of stability, even if it means the quasi-socialist, closed-door policies of the Kirchner era.

Everyone was surprised by Sunday’s results.

The majority of opinion polls in the weeks prior to the primary elections had the gap between the two candidates at less than 8%, with some polls predicting more votes for Macri.

The pollsters are wrong, even in Argentina, where this race now looks like Fernandez's race to loose. He is now in a strong position to win the first round of the presidential elections on October 27, 2019.

Fernandez has historically been associated with the more pragmatic elements of the Peronist party, so some in the market think better days are ahead after the initial transfer of power.

For example, he resigned from the Cristina government in July 2008 in protest of the administration’s approach to the agricultural sector.

But most people voting for Fernandez are really voting for Cristina, suggesting she will at least have some say of control of the economic levers.

“We think it is likely that she will have a fairly high degree of influence on economic policy, at least in the immediate aftermath of an election victory,” says Brett Diment, head of emerging markets debt at Aberdeen Standard Investments.

Investor concerns about capital controls and the ability or willingness of a new incoming administration to continue with the IMF program led to yesterday’s sell-off.

“We'll continue to monitor the situation closely in Argentina, particularly with regard to the likely policy moves of an incoming Fernandez-Kirchner administration,” Diment says.

There is also little or anything Macri can do over the next two months to alter voter trends, Siobhan Morden, head of Latin America fixed income for Amherst Pierpont Securities, wrote in a note to clients on Monday.

The economy is weak. The IMF is hated. Macri’s odds of winning are slim as he faces the backlash of four years of deteriorating wealth for most Argentines. A lot can change between now and October 27, but the odds are not looking good for Macri.

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I've spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big eme...