Argentine assets cheer Milei party’s election victory with massive rally

Argentina’s bonds, stocks and currency are surging after President Javier Milei’s party won an overwhelming victory in a Sunday midterm election, a key requisite to keep economic reforms on track and a United States financial backstop in place.

On Monday, international bonds rallied between 9 and 13 cents each, local stocks jumped over 20 percent and the peso strengthened some 6 percent to the dollar, halving its initial rally.

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Official results in Argentina’s Sunday legislative elections show voters strongly backed Milei’s free-market reforms and deep austerity measures, with inflation falling sharply since he took office nearly two years ago.

The unexpectedly strong showing came after the US pledged a combined $40bn to support Milei – a $20bn central bank swap line and a potential $20bn loan facility – and implied the backing was contingent on Milei’s reform agenda.

“His victory was so, so much larger than expected,” said Thierry Larose, portfolio manager at Vontobel Asset Management. “Previously he was in a state of survival, and now he’s … in a very strong position to try to form tactical alliances and push some reforms that were completely out of reach.”

Rally

The president’s party, La Libertad Avanza (LLA), received 41.5 percent of the vote in Buenos Aires province compared with 40.8 percent for the opposition Peronist coalition, according to official results. The province has long been a Peronist stronghold, marking a dramatic political shift. Nationally, LLA took over 40 percent of the vote, a much better-than-expected result.

“Critically, Milei’s victory speech was notably moderate and cooperative, signaling willingness to work with non-LLA legislators on reforms,” Christine Reed, emerging market fixed income portfolio manager at Ninety One, said in a note.

The country’s international dollar bonds were pushing against historic highs posted earlier this year, with the 2038 maturity up 13 cents to 73 cents on the US dollar.

US-listed shares of Argentine companies also surged, with financial shares rising up to 50 percent and the Global X MSCI Argentina ETF adding 20 percent, after falling 10 percent year-to-date through Friday. Stocks traded on US exchanges jumped 34 percent.

The peso initially strengthened as much as 13 percent to the dollar at 1,320 per greenback and was last 5.8 percent stronger on the day at 1,410.

The currency’s strength makes sense, especially with the backdrop of US support, according to Matthew Graves, portfolio manager for emerging markets debt at PPM America.

“The government has some breathing room now, and can take next steps from a position of relative strength,” he said. “We still think the FX bands are better used as a tool to facilitate a transition to more of a true managed-float FX framework. Investors will be keen to understand what this path might look like, and how it will facilitate a more rapid accumulation and rebuild of FX reserves.”

Longer horizon for foreign investors

Argentina’s assets have been on a roller coaster ride since Milei’s party suffered a wider-than-expected defeat in a provincial vote in Buenos Aires last month.

The peso had weakened some 25 percent since mid-April’s partial scrapping of foreign exchange controls, and close to 30 percent since the start of the year. On Friday, it touched a record closing low of 1,491.50 per dollar.

Argentina’s international dollar bonds were among the worst-performing emerging market high-yielders this year to Friday, after having returned over 100 percent to investors in 2024

The local stock benchmark last month touched its lowest in a year. While it has since risen more than 20 percent, it is down nearly 30 percent from a record high set in January.

Now, the stronger position for Milei’s party in the legislature will encourage more investment, investors have said, as electoral risk recedes. It also boosts hopes for reform-minded candidates even in the next general ballot in 2027.

“The midterms yesterday just give a longer horizon for potential foreign investments, both in financial assets and in real assets,” said Graham Stock, senior sovereign strategist with RBC BlueBay Global Asset Management.

While some still anticipate a reform to the foreign exchange framework that would encourage the accumulation of reserves, with a wider band or a free float of the peso among the options, confidence in Milei’s reform outlook could naturally strengthen the currency, RBC’s Stock said.

Carmen Altenkirch, an emerging markets sovereign analyst at Aviva Investors, said the results could kick off a “virtuous cycle” in which locals begin selling dollars again.

“I think a stronger exchange rate is feasible,” Stock said, adding that depleted dollar reserves were a key weakness.

“They need to take advantage of peso strength to buy up dollars and build those reserves up, which they can do with the current regime,” he said.