Milei does not disrupt global markets

The policy document of anarcho-liberalist Javier Milei-from the abolition of the central bank to the "dollarization" of the economy to the dismantling of the welfare state-has catalyzed the attention of the entire global political and financial parterre by opening up a scenario full of unknowns.

Despite the shock confirmations of campaign promises the impact on financial markets of Argentina's general elections, which saw the ultra-liberal right-wing candidate in particular prevail (and not at the last vote) is certainly important for the shaping of new perspectives at the geopolitical level but less relevant from the point of view of global stock market performance.

Andrea Mongardini, portfolio manager at Banca Generali, is convinced of this, recalling how Argentina has always been characterized by serious political and economic crises that have generated as many as nine defaults on the country's government bonds, the highest number ever recorded in the world. Argentina is currently in a very complex situation, with inflation at about 142 percent, a public debt of $419 billion, and 40 percent of the population in poverty.

The South American country in 2019 in order to preserve as much as possible the devaluation of the "pesos" introduced the capital control system that restricts monthly purchases of foreign currencies by residents, forcing exporters to repatriate foreign earnings and forcing banks and other companies to apply for permission before selling pesos in exchange for other currencies. The result of these restrictions at the financial level has been the exclusion of the Argentine stock and bond market from the major emerging indexes and the irrelevance of the Argentine "pesos" in the global currency landscape. "Therefore, it is fair to expect that the elections at the financial level will not be an event capable of driving the performance of global stock markets over the coming weeks even though they constitute an important event in the current geopolitical scenario especially based on the program that Milei will put in place in the coming months," Mongardini comments.

In the first hours following the outcome of the polls, shares of Argentina's listed companies listed in New York rose more than 10 percent as did government issues issued in dollars in the same way. "Investors therefore initially took Milei's victory in stride although there is much anticipation as to whether he will be able to carry out the 'dollarization' of the country announced in the election campaign with the total de-authorization of the role of the central bank, which is held responsible for the critical situation in which the country finds itself. The principle of dollarization would allow Argentines to use a currency that is not subject to fluctuations like the pesos thus giving stability to the national economic system. But at the same time it would be an extremely difficult financial operation to sustain for a country that already fails to repay the dollar funds obtained from the International Monetary Fund," the expert concludes.

The Argentine market on Tuesday 21 reopened trading with a rise of about 20 percent in local currency after Monday's holiday. The rise was widespread across all sectors with some stocks posting the biggest rises in more than two decades. Volume traded on the stock market was about 10 times the average of the past 20 days.