(Redesigns with bond prices and equity market)
BUENOS AIRES / NEW YORK, Nov. 15 (Reuters) – Argentine bonds rose sharply on Monday after the ruling Peronists lost heavily in the midterm elections, with investors hoping the loss could force a shift to more moderate policies as the government reaches the other side of the aisle in Congress.
Argentina’s over-the-counter bonds climbed 1.7% on average, led by the “Bonar 30”. A benchmark 2035 sovereign bond, issued during a restructuring last year, rose 0.75 cents to about 31 cents on the dollar.
The local S&P Merval stock index was meanwhile lower as investors sought to take profits after recent increases.
Investors in Argentina generally see a silver lining in the congressional vote, saying it could create a shift towards more orthodox economic policies. Others fear that a battered government will take an even more populist stance.
The conservative opposition won key congressional races across the country on Sunday, wiping out the Peronist majority in the Senate, which will force President Alberto Fernandez to work across the aisle to push through new legislation.
“The most relevant result in our view is that the government bloc has lost a majority in the Senate,” Diego Pereira, JP Morgan chief economist for the Southern Cone said in a note. He called this a “blow” to the more populist wing of the government headed by Vice President Cristina Fernandez de Kirchner.
The vote confirmed the result of an open primary election in September that sparked a major cabinet reshuffle and created divisions within the ruling party. President Fernandez adopted a conciliatory tone on Sunday evening and called for cooperation between the parties.
“The market is likely to have a net positive view of the election results,” said Alberto Ramos, economics manager for Latin America at Goldman Sachs, in a note.
Voters appear to have rejected the current policy mix and its results, he said, pointing to “very high inflation coupled with declining economic and wage growth”.
“But there is also the risk of more populist policies in the short term,” Ramos added.
Investors in the South American country generally view conservatives as more pro-market and wary of the center-left Peronist government of Fernandez and his powerful vice president.
“CALM THE MARKETS”
The electoral defeat, on the other hand, could lead to more divisions within the Peronists in power and see a potential seizure of power by factions more to the left allied to Fernandez de Kirchner, and hamper more moderate voices such as the Minister of the Economy Martin Guzman.
But it also gives momentum to the opposition, which investors may see as positive ahead of the 2023 presidential vote. And with sovereign bond prices stranded in troubled territory for months after the 2020 debt restructuring. , much of the risk is already built in.
“The value of bonds already reflected a situation of great uncertainty, so I think the result itself will not change (prices) too much,” said Santiago Bulat, economist at the consulting firm Invecq.
The benchmark for local currency stocks has hit a series of record highs this year, most recently last Tuesday, as locals buy stocks amid a weakening currency and the soaring dollar. inflation erodes the value of their savings.
The official peso has lost 16% of its value against the US dollar this year in a controlled devaluation, but the informal exchange rate is almost double the official rate. Annualized inflation is above 50%.
“The government must calm the markets, by communicating a more orderly fiscal and monetary policy,” said Rodrigo Álvarez, economist and financial consultant based in Buenos Aires.
“A plan to stabilize things is necessary. “
Reporting by Jorge Otaola and Rodrigo Campos; Additional reporting by Marc Jones in London; Editing by Adam Jourdan, Ana Nicolaci da Costa and Hugh Lawson