Argentina Equities Show Mixed Action After Presidential Election Leaves Far-Right Candidate Gasping For Air

Argentina's horizons appear more muddled than ever after Sunday’s general election.

Yet stocks tied to South America’s second-largest economy have had a very positive year and are proving surprisingly resilient to the country's hallmark political instability.

What Happened In Argentina’s Election: A general election on Sunday left the stage divided between far-right libertarian Javier Milei and progressive centrist Sergio Massa, as polls closed without any candidate achieving the necessary votes to become president in the first round.

A November runoff between the two will define who will head the country's executive power for the next four years.

Milei, an outsider economist who rose to fame in recent years with ideas of economic libertarianism, an eccentric personality and criticism of the country's "political caste," had won the most votes in an August primary election, but came in second to Economy Minister Massa on Sunday.

The results break the balance of power between the two main coalitions that had been disputing power for the last two decades. Patricia Bullrich, heading the pro-market opposition coalition "Juntos Por El Cambio," a political child of former President Mauricio Macri, came in third, disqualifying her from the presidential race.

Milei could harness a percentage of Bullrich's voters, as the two have certain campaign elements in common.

The Economic Backdrop In Argentina: What's at stake in the November runoff? Two very contrasting economic and political models for a country battered with three-digit inflation and rising poverty rates.

Massa represents the the latest rebranding of Peronism, an ideology centered around the three governments of 20th century political hero Juan Domingo Perón. In its latest iteration, Peronism has held power for 16 of the last 20 years.

After a lifelong career in politics, 51-year-old Massa became a top man in the cabinet of current President Alberto Fernández, and the unspoken choice of Vice President Cristina Fernández de Kirchner, who held the presidency between 2008 and 2016, following the rule of her late husband Nestor Kirchner.

The Kirchners became central to Argentina's political scene after their first two terms managed to lift the country out of the pit dug by a 2001 crisis.

Alberto Fernández's presidency was marked by another descent into poverty after the COVID-19 pandemic and a devastating drought. The geopolitical scene translated into a dramatic loss in purchasing power and exorbitant levels of inflation for Argentinians.

More than 40% of Argentinian adults and 60% of children are considered poor by the country's own measures. September's annual inflation rate reached 138%, leading the population to manifest vast discontent and fury at their diminishing quality of life.

This discontent has fueled the rise of Milei, 53, who has become a favorite among those who believe that Kirchner’s welfare state policies, often referred to by the opposition as populism, are responsible for the country's struggles.

Milei is proposing a radical shift for the role of the state, creating a far-reaching free market economy where the government steps back and allows for the market to balance the country's major financial troubles.

His proposals include a pullback on state grants to poorer families, the sell-off of state assets to private companies and the creation of a free exchange rate, opening up the gates to international trade and eliminating any type of protectionism for local business. 

The economist's most extreme idea is crystallized in his repeated catchphrase of "burn the central bank”: retiring Argentina's battered currency, the peso, in exchange for a full "dollarization" of the country's economy.

Under the banner of "freedom or death," Milei, who has expressed admiration for Donald Trump and Brasil's Jair Bolsonaro, represents a segment of Argentine society that has lost faith in the ability of the status-quo political system to guarantee the population’s most basic necessities.

Yet critics of Milei have said that reducing the state to its minimum expression is an invitation for large companies and global powers to plunder the country's natural resources without restriction, leaving the poor even poorer.

Carlos Maslatón, a pro-Bitcoin political analyst from Argentina who formerly was a part of Milei's coalition, said the results were an absolute bust for the libertarian, who only added 700,000 votes from the primary elections.

Massa's partial win was a surprise. He added 3.5 million voters since the primaries and reached 37% of the electorate against 30% for Milei.

What The Markets Are Saying

Investors appear immune to Argentina's political quarrels. No clear pattern has emerged from the country's main U.S.-listed companies after the election results.

The Global X MSCI Argentina ETF ARGT, the largest ETF following Argentinian companies, has expressed see-saw behavior in anticipation of the elections. The fund is up 18.5% since January, but lost over 17% of its value since Sept. 1.

The fund is composed of 23% weighting to Mercado Libre MELI, Argentina's largest tech company. The U.S.-incorporated business, which also doubles as a financial services firm, dominates the e-commerce market in South America, where Amazon AMZN hasn't fully entrenched its operations. 

In spite of Argentina's political woes, Mercado Libre, which is headquartered in Uruguay and has major operations in Brazil, Colombia, Chile, Mexico and other countries in the region, is showing strength. The company is up 43.5% since January with a drop of 2.4% in the last week.

Vertically integrated oil and gas company YPF YPF, which is publicly listed but majority-owned by the Argentinian state, suffered a 5.3% drop after the election. The company is a major source of pride for Argentina's left-leaning politicians, who see it as a strategic asset in guaranteeing the country's energetic self-sufficiency.

YPF could have experienced a sell-off due to the partial loss for Milei reducing the chances of his plan to sell the 51% share currently owned by Argentina to private buyers reaching fruition.

Argentina was the 26th-largest oil producer in the world in 2022, but a large shale deposit in the country's Patagonia region has boosted its oil and natural gas production by double digits, with the promise of growing even more on an yearly basis.

Pampa Energia S.A. PAM, the country's largest independent energy producer, saw a drop of 7% in after-hours weekend trading, but recovered more than half of the losses since trading began Monday.

Agricultural giant Adecoagro SA AGRO, which produces and exports dairy products as well as cereals and sugar, has delivered returns of almost 44% this year. While the stock bounced back from an August drop in anticipation of the country’s primaries where Milei emerged as the leading candidate, the libertarian's partial defeat did not drive a comparable drop. The stock is down only 1.46% on Monday.

Grupo Galicia GGAL, one of the largest domestically owned banking companies in the country, is up 1.32% on Monday. The stock has delivered 22.5% this year, although the company is seeing a drop of 35% since Aug. 30.

Javier Milei. Shutterstock image.