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Wednesday, October 28, 2015

Investors Bet On Change In Argentina


Investors bet on change in Argentina

Unexpectedly close election raises hopes of more market-friendly government
B
randed an international financial pariah since what was then the biggest sovereign debt default in history in 2001, investors are optimistic that Argentina will soon come in from the cold.
A stunning performance in presidential elections on Sunday by Mauricio Macri, the centre-right mayor of Buenos Aires who campaigned for change, has raised hopes he could clinch a victory in a run-off vote on November 22.
The prospect of a break from rule by Argentina’s dominant Peronist party sent bond prices soaring on Monday.
“‘Macrinomics’ is now a distinct possibility. This would be a positive for the country,” says Edward Glossop, emerging markets economist at Capital Economics in London. “It’s clear that the tide is turning in Argentina and disillusionment with interventionist and populist policies is growing.”
Markets see whoever wins the run-off vote — Mr Macri is set to face off against the government-backed Daniel Scioli, the moderate Peronist governor of the province of Buenos Aires — as an improvement on the last 12 years of rule by President Cristina Fernández and her late husband and predecessor, Néstor Kirchner.
But Mr Macri, who some pollsters had predicted would not win enough votes to make it to the second round, has promised to move much faster to fix serious macroeconomic imbalances, which include a ballooning fiscal deficit financed by the central bank, precariously low foreign exchange reserves and one of the highest inflation rates in the world.

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Argentina is heading for a presidential run-off after a turnround in the fortunes of the opposition candidate, Mauricio Macri. Jonathan Wheatley asks Benedict Mander, FT correspondent in Buenos Aires, whether the business friendly mayor of Buenos Aires has credible plans for fixing the economy.
“A Scioli victory in the first round would not have been bad, but a Macri victory in the second round would make this an economic normalisation trade, not just an ‘anybody but Cristina’ trade,” says Daniel Freifeld, principal of Callaway Capital Management, an investment firm.
“Equity valuations and yields should converge with regional averages, which will translate into significant gains.”
Mr Macri has pledged to remove strict capital controls immediately and allow the overvalued peso to float freely. The former president of the Boca Juniors football club would also tighten fiscal policy by cutting back on costly subsidies and attempt to resolve a long-running creditor dispute that has blocked Argentina’s access to the international capital markets since its $100bn sovereign debt default.
Meanwhile Mr Scioli has promised to implement more “gradual” reforms, and warns that Mr Macri would represent a return to the neoliberal economic policies of the 1990s that many see as responsible for the 2001 economic crash.

epa03630485 Argentina's President Cristina Fernandez de Kirchner (C-L) speaks during a news conference in Rome, 18 March 2013, on the eve of Pope Francis inauguration mass. Argentine-born Pope Francis on 18 March met with the leader of his home country, President Cristina Fernandez de Kirchner, on the eve of his inauguration mass in Saint Peter's Square. Kirchner said she had asked the Pontiff to intervene in the row between their home country and Britain over the Falkland Islands. EPA/ETTORE FERRARI
Whoever wins election inherits a ballooning fiscal deficit
Crucial to the final outcome will be those who voted for Sergio Massa, a dissident Peronist who came in third place on Sunday with 21 per cent of the vote and is positioning himself as kingmaker.
Observers are speculating that Mr Massa could throw his weight behind Mr Macri’s “Let’s Change” coalition.
It also remains unclear how Ms Fernández will respond after a humiliating defeat for her cabinet chief and inner circle member, who lost the key race for the governorship of the province of Buenos Aires, which holds almost 40 per cent of the electorate and is seen as Argentina’s second most powerful political office after the presidency.
According to Elypsis, the only pollster to predict the result on Sunday accurately, Mr Macri is the favourite to win the run-off vote. The consultancy assigns Mr Macri a 70 per cent probability of victory.
In a note to clients, Elypsis highlighted the positive momentum from the surprise result — especially the stunning victory in the traditionally Peronist stronghold of the province of Buenos Aires — and the fact that Mr Massa is closer to the “Let’s Change” coalition than to the ruling party, which he has criticised fiercely.
“Scioli is no longer the favourite in a run-off against Macri,” agrees Jimena Blanco, Latin America analyst at Verisk Maplecroft.
She says this is because the vast majority of the undecided voters ended up supporting opposition candidates, and that it was “improbable” that those voters would realign behind Mr Scioli in the second round.
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