2019 Elections - Part 6. Argentina: Macri Magic and the Peronist Spell
Political dynamics in Argentina are highly uncertain in comparison to the relative predictability of even Greece and South Africa. The electoral fortunes of Mauricio Macri and the fragile Cambiemos, the incumbent, and a pro-market outcome for Argentina, will depend on the degree of accomodation within Peronism as in 2015. If Cristina Kirchner stands for election, our central scenario, albeit if she survives a probe, she will probably run an anti-IMF/austerity campaign, outflanking more moderate voices within Peronism, which raises uncertainties and risks to Argentina’s stability. Populism is on the rampage across the world, though the tide may be turning against Cristina Kirchner’s brand, embodied in her elevated rejection rate. Macri may be counting on having Cristina as his adversary. There is even a theory that Macri, in tune with Brazil’s Bolsonaro, will structure his campaign around a “tough on crime” platform. This could be a masterstroke diverting attention from the state of the economy. However, Macri’s hopes, based on macroeconomic orthodoxy, backed by the IMF, cannot be dissociated from a tangible improvement next year in the financial well being of the population in general. While inflation may work in his favour, declining from 45% to the 25% area, and a narrowing current account plus bumper harvest are forecast, high joblessness and social cohesion represents a risk to the Macri project. We are mindful too of the potential for corruption fireworks, including “Lavo Jato” or “Carwash”, which could derail some political aspirations. Whoever wins the presidential election, and a Macri victory is the most probable scenario, Argentina faces a highly uncertain 2020 from the perspective of debt sustainability. Despite the recent strong outperformance of uncorrelated Argentine asset prices in a global risk-on rebound, including (a worrying) Peso overshoot, not unrelated to the upgraded generous IMF package, it is difficult to have an excessively bullish conviction call in what is a highly speculative market based on “everything coming together” as planned. 2015 elections were too close to call and 2019 has its complexities. In LatAm, one can never take anything for granted - least of all an electoral “shoo-in”.
This insight is Part 6 of a six-part series on 2019 elections in which we evaluate key polls and their potential to re-shape the economic outlook and investment risk profiles. These six markets - Thailand, Indonesia, India, South Africa, Greece and Argentina - collectively represent one-quarter of the world’s population and more than $5 trillion in GDP. We review distinct domestic challenges as well as campaign pledges by incumbents (and their challengers) aimed at addressing them. We also humbly assign probabilities to baseline and alternative scenarios and their implications for macroeconomic outlook and investments.
Even amidst their diversity, these six jurisdictions display some remarkable similarities: subdued economic momentum, bouts of market volatility, signs of voter disquiet and/or disillusionment and an opposition looking to capitalize on all of these forces. In a bid to revive the ‘magic’ that had helped to install their administrations, many incumbent governments are now on the defence - either changing tack (and dialing back past policies) or attempting to convince voters to let their policies work their magic.
Summary - Election timeline, political risk classification and market implications:
Election date (2019) | Degree of uncertainty | Baseline scenario (%) | Market implications | Market view | |
Thailand | 24 March | Medium to High | Elections are held and pro-junta PP keeps control (65%) | Medium to Low | THB: Stable unless political uncertainty erodes confidence, tourism ThaiGB: Stable CDS: Gradually wider SET: Energy, materials and capital goods favoured. More upside in non-bank financials vs financials. |
Indonesia | 17 April | Low | Jokowi re-elected, PDIP coalition intact (75%) | Medium | IDR/IndoGB: Constructive INDON: Stable JCI: prefer energy, materials, services, capital goods, transportation,and telco.Cautious on main banks. |
India | April to May | High | BJP/NDA retain power, with smaller majority (60%) | High | INR/IGB: Steeper curve (bearish long-end) CDS: Wider on potential negative sovereign outlook Nifty: Cautious healthcare and banks. Overweight IT. |
South Africa | 7-31 May | Medium to High | ANC retains power (80%) | High | ZAR/SAGB: Constructive SOAF: Constructive JSE Top40: Constructive on Financials. Cautious on consumer. |
Greece | 20 October | Medium to High | ND returns to power (52%) | Medium to High | GGBs/CDS: Scope to tighten vs periphery peers AEX: Banks may revive though European credit markets need to be watched. Energy, Infra, and utilities offer opportunity. Gaming too. |
Argentina | 27 October | High | Cambiemos retains power (52%) | High | ARS/Argtes: Peso richly valued but slower inflation positive for Argtes ARGENT: Volatile Merval: Volatile. Optically cheap valuations signify risk and weak growth. Hydrocarbons could be a winner. Cautious on consumer. |
Source: Authors' assessment
Historical 5yr CDS (Argentina and Greece = LHS, all others RHS):
Historical Equity Indices (rebased where 1 Jan-2018 = 100):
Please refer to other insights in this series:
- Elections 2019 - Part 1. Thailand: Magic Moment for Democracy’s Return?
- Elections 2019 - Part 2. Indonesia: Jokowi’s Policies - Magic Bullet or Bitter Pill?
- Elections 2019 - Part 3. India: Modi’s Magic Touch Fades as Populism Makes a Comeback
- Elections 2019 - Part 4. South Africa: Ramaphosa - ANC’s Magician?
- Elections 2019 - Part 5. Greece: New Democracy Promises Magic Makeover
- Elections 2019 - Part 6. Argentina: Macri Magic and the Peronist Spell
This series is co-authored by Paul Hollingworth at Creative Portfolios and Virgil Fernandez Esguerra.
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