Massa, Milei to Face Off in Argentine Election Runoff: How Will the Markets React?

The current economy minister and Javier Milei will compete in the presidential runoff on November 19

Foto: Matthew Lloyd/Bloomberg
October 23, 2023 | 12:23 AM

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Buenos Aires — Argentina’s general elections on Sunday yielded surprising results, contrasting with opinion polls published in the weeks leading up to voting day.

And while a runoff was a widely predicted outcome, Economy Minister Sergio Massa’s comeback from the primaries to finish first, with nearly 37% of the votes, was a surprise. The government’s candidate and libertarian Javier Milei, who mustered just under 30% of the vote, will now go head to head in a second round on November 19, while market analysts debate the fate of the country’s asset prices in the coming days.

Initially, the behavior of the crypto dollar suggests that the US currency may drop in parallel markets, while the outlook is more challenging for bonds and stocks.

How does the market view a Massa vs Milei runoff?

“The fact that Milei did not win in the first round and does not have a guaranteed victory in the second round is good for preventing a surge in the dollar, given all that Milei had been saying and his discourse of dollarization, in a context in which Massa does not have too many resources with which to intervene,” according to Javier Timerman, managing partner of Adcap Grupo Financiero.


For its part, consultancy firm 1816 had anticipated in a report published on Friday that if Massa reached the runoff, as eventually happened, the official dollar would remain at 350 pesos, in line with what officials Gabriel Rubinstein and Eduardo Setti reaffirmed in recent hours.

“As long as he [Massa] remains in the race, we assume that the government will exhaust all avenues to maximize its chances in November,” 1816 states.

In this context, the crypto dollar saw a decline on Sunday following the elections, due to Massa’s good results, which are seen as reducing Milei’s chances, and who has proposed the elimination of the peso in Argentina.


Beyond what specifically happens with the dollar, consultancy firm Outlier stated in a report published on Friday that the scenario of a runoff between Milei and Massa would generate the most volatility in the market.

“Massa would have incentives to deepen fiscal irresponsibility. Furthermore, his program does not offer any anchor for expectations. Milei would not have incentives to anchor expectations and does not seem to be well positioned politically to promise to reverse these fiscally irresponsible measures,” Outlier analysts stated, adding that Milei’s likely strategy would be to intensify his proposal of a “hurried dollarization” to try to address many of the imbalances before Massa has to bear the political costs.

The scenario for bonds and stocks

Javier Casabal, a fixed income strategist at Adcap Grupo Financiero, estimated that after the confirmation of the candidates to compete in the runoff, “the initial reading should be negative” for market assets, as, in his view, investors were expecting confirmation of a regime change, and these results indicate the opposite.

“However, these results also reduce much of the uncertainty generated by Milei’s lack of a team and concerns about his ability to generate consensus. If Massa and Milei end up addressing many of the sources of uncertainty as they seek more moderate voters, prices are likely to quickly find a floor of around $25 for the Global 2035 and begin to recover.”


The “worst” scenario

According to Adriana Dupita, an analyst at Bloomberg Economics, the scenario that resulted from the October 22 election is possibly “the worst scenario for the markets.”

“We do not expect either of them to provide details about their political plans leading up to the November 19 elections,” Dupita anticipated, adding that Massa might double down on his “populist” focus with an artificially strong peso, “interventionism, and fiscally costly measures.”