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Traders Cheer On Argentina as Milei Win Underpins Austerity Push

Kevin Simauchi
·3-min read

(Bloomberg) -- Investors welcomed congressional approval of President Javier Milei’s omnibus bill, saying it showed he can push through contentious reforms many see as key to getting Argentina’s economy back on track.

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The president won just enough support to advance his landmark austerity package in the Senate early Thursday morning, following weeks of horse-trading and pushback from opposition lawmakers.

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The vote confirmed many investors’ base case scenario, sending sovereign bonds higher. US-listed shares of Argentine companies and an exchange-traded fund that tracks the country’s stocks also climbed.

Still, some see additional gains as limited since much of the reform was already priced in, and the Senate’s rejection of a provision that would expand income tax triggered concerns over Milei’s ability to eliminate fiscal deficits. A cobweb of capital controls and a weaker peso in parallel markets may also hinder foreign investment, they said.

Graham Stock, senior EM sovereign strategist at RBC BlueBay Asset Management:

  • The bill’s approval is a “very important milestone,” as it moves the “government a step closer to having some legislative underpinning for its reform program rather than relying solely on executive actions”

  • Move has “positive implications” for bond prices as it puts the fiscal adjustment on a more sustainable footing

  • “It is very important that the Lower House reinstates the personal income tax, both as a source of revenue for the provinces and as a signal that Argentina is returning to more normal public policy settings”

Kate Moreton, analyst at Columbia Threadneedle:

  • “It proves that Milei has some governability and that his reform story has legs, but I expect us to kind of top out where we are” in terms of the levels at which bonds are trading, given how much reforms were already priced in

  • “My base case is that we will still need a restructuring at some point”

  • “This is kicking the can down the road further, but I think there’s still a lot of of risk here”

Citigroup Inc. strategists led by Donato Guarino:

  • The bill’s approval marks a “bittersweet win” for Milei’s administration as it has been in the works for the last six months, but has been “constantly diluted”

  • Remains overweight on Argentina’s bonds and reiterates call to go long on notes due 2030

Stuart Sclater-Booth, portfolio manager for emerging-markets debt at Stone Harbor Investment Partners:

  • While watered down, the bill demonstrates that Milei and team can in fact pass legislation, which is “important for credibility with investors and with likely negotiations with the IMF”

  • “The passage of the bill was a necessary, but not necessarily sufficient condition for the Argentina recovery. There is still progress to be made on normalizing FX, improving domestic credit and generating growth”

  • While the reforms facilitate some foreign investment, the lack of a normalized FX regime still presents some obstacles for “meaningful FDI”

David Austerweil, deputy portfolio manager for emerging-markets at Van Eck Associates Corp.:

  • The bill’s “passage was largely expected and due to the many compromises needed to gain its acceptance, it will not generate material fiscal savings”

  • “We currently have no position in Argentine sovereign bonds. With the likely passage of the Omnibus bill, the expected good news is likely behind us”

  • The pace of the country’s reserve accumulation has slowed and “even turned slightly negative this month”

  • “At the current overvalued level of the exchange rate and low interest rates, exporters can finance inventories and wait to sell them at a cheaper exchange rate and so reserve accumulation will likely continue to underwhelm. This should increase expectations of another FX devaluation and add further pressure on international reserves”

  • “For us to become more constructive on Argentine sovereign bonds, the exchange rate would need to move to a floating regime that restores competitiveness and allows for competitiveness to be retained without the need to future one-off devaluations”

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