Market News

BY EMMA TAGGART

Argentina’s markets have fallen sharply after President Javier Milei was defeated in a crucial provincial election.

The shock election defeat has cast doubt on whether Mr Milei has the political support to push through his economic reforms.

The disappointment was felt in Argentina’s markets, with the country’s flagship stock market plunging 10.9pc. The peso fell 5pc against the US dollar and the country’s benchmark dollar bonds fell by as much as 10.5pc to trade at around 55 cents.

Investors were disappointed by the result of the election. Many had expected that a defeat of more than 5 percentage points would lead to a sell off in Argentinian assets.

Fernando Sedano and Simon Weaver, from Morgan Stanley, told investors that the election defeat increased the chances that “the market questions the likelihood of continued reforms, and uncertainty rises around the future external financing sources”.

On Sunday, Mr Milei vowed to “accelerate” his libertarian reforms, which has involved dismissing tens of thousands of public employees and a major deregulation drive.

His government faces now the difficult choice whether to allow the peso to depreciate ahead of next month’s mid-term elections or spend its foreign exchange reserves to intervene in the market, according to Pramol Dhawan at Pimco.

“Opting for intervention would likely prove counterproductive, as it risks ... diminishing the country’s prospects for future market access to refinance external debt,” Mr Dhawan said.

“The more resources the government allocates to defending the currency, the fewer will be available to meet obligations to bondholders – thereby increasing the risk of default.”