August 12, 2019 / 8:35 PM / 3 months ago

EMERGING MARKETS-Argentina markets crash as Macri's re-election chances drop

 (Updates prices)
    By Susan Mathew
    Aug 12 (Reuters) - Argentine stocks and the peso plummeted
30% on Monday as fears of a possible return to interventionist
policies gripped after conservationist President Mauricio Macri
lost by a much wider-than-expected margin to opposition in
presidential primaries.
    The peso recovered some to trade at 52.15 per dollar,
after having fallen to an all-time low of 61.99, as the central
bank used $50 million in its own reserves to defend the peso.

    The country's main stocks index posted its worst day
ever with all its components well in the red, while the cost of
insuring exposure to Argentina's sovereign debt surged almost
1,000 basis points.
    Stumping expectations, opposition candidate Alberto
Fernandez - whose running mate is former President Cristina
Fernandez de Kirchner - dominated the primary on Sunday,
significantly lessening Macri's chances of being re-elected in
October. 
    Concerns among market participant stem from possible policy
discontinuity and intervention as experienced earlier under
Kirchner's government.   
    "What is unclear is exactly how Fernandez and Kirchner
intend to conduct economic policy if they come to power," said
Alejo Czerwonko emerging markets strategist at UBS Global Wealth
Management's chief investment office.
    Concerns remain high and have to do with questions such as
the composition of the economic team - who will oversee
designing and implementing economic policy, what is the
relationship that the new administration will have with the IMF,
among others, Czerwonko said. 
    Fernandez has said he would seek to rework Argentina's $57
billion standby agreement with the International Monetary Fund.
Other worries for investors include the opposition's view that
the beleaguered peso is over-valued and its call for lower
interest rates on the central bank's short-term notes.
 
    While Argentine assets are expected to remain pressured for
the near future, UBS's Czerwonko agrees with some analysts who
say the fear of contagion to other Latin American markets and
broader emerging markets remains low as Argentina's issues are
"self-inflicted and very idiosyncratic."      
    Other currencies in Latam fell between 0.5% and 2%, and most
regional stocks market fell almost 1%, in line with markets
worldwide.
    A Goldman Sachs warning that reinforced fears of a prolonged
U.S.-China trade war tipping the global economy into recession,
along with worsening protests in Hong Kong, and the Argentine
nosedive made for a strong cocktail, sending markets into a
tailspin.
    Brazil stocks fell 2%. The country's right-wing
President Jair Bolsonaro warned on Monday that his country could
see a wave of migrants fleeing Argentina if leftists were to
return to power in presidential elections.

    Key Latin American stock indexes and currencies at 0813 GMT:
     Stock indexes               Latest    Daily %
                                            change
 MSCI Emerging Markets             973.49     -0.78
                                           
 MSCI LatAm                      2,660.51     -3.84
                                           
 Brazil Bovespa                101,971.29        -2
                                           
 Mexico IPC                     39,842.01     -1.43
                                           
 Chile IPSA                      4,826.66     -1.76
                                           
 Argentina MerVal               27,539.08       -30
                                           
 Colombia IGBC                  12,453.04     -0.52
                                           
                                                   
         Currencies              Latest    Daily %
                                            change
 Brazil real                       3.9791        -1
 Mexico peso                      19.5824     -0.93
 Chile peso                           714     -0.41
 Colombia peso                   3,424.53     -0.92
 Peru sol                           3.381     -0.03
 Argentina peso (interbank)       52.1500    -15.84
                                           
 
 (Reporting by Susan Mathew in Bengaluru;)
  
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