Economy Politics

Markets now pricing Macri as (slight) favorite for re-election

11th July 2019

By Ignacio Portes

Markets now pricing Macri as (slight) favorite for re-election

Early in 2019, Mauricio Macri was struggling to secure even some modest election-year financial stability to boost his odds of winning a second term.

But with headwinds for emerging countries subsiding on the past few months and the International Monetary Fund (IMF) crucially authorizing Argentina’s Central Bank to sell its loaned dollars in case of a continued run against the peso, the president’s fortune seems to be turning.

</p> <p>Markets are now pricing Macri as the most likely winner of this year’s presidential race, although much could still happen between now and a potential runoff in November. “Macri is being priced as a 60-40 favorite, even if the polls are showing a head-to-head race,” Proficio Investment’s Rafael Di Giorno told <em>The Essential</em>.</p> <p>His words were in line with those of Orlando Ferreres yesterday. “Macri has a 60 to 65 percent chance of winning,” the long-time Argentine economic consultant said during an <a href="https://radiomitre.cienradios.com/entre-el-primer-y-el-cuarto-trimestre-el-producto-va-a-crecer-un-11-o-12-afirmo-orlando-ferreres/">interview</a> with Radio Mitre. “This is all according to our models, which we use to brief businessmen on these issues,” Ferreres explained.</p> <h2><strong>Closer in the polls</strong></h2> <p>According to Pablo Castagna, Director at Balanz Capital, international investors’ renewed appetite for risk in emerging markets over the last few months has helped turn the tide. And locally, everything is about the value of the peso and Macri’s figures in the polls, both of which have also been improving lately.</p> <p>“I don’t know if they see Macri as the winner, but they see that the polls that used to show him 10 points below the Fernández-Fernández ticket have now narrowed, and it’s now closer to a head-to-head battle in the primaries,” Castagna told <em>The Essential</em>.</p> <p>In his <a href="https://twitter.com/pablocastagna">Twitter feed</a>, Castagna posted a chart averaging the poll results of multiple consultancy agencies over the last few months. According to those figures, Macri had dipped below 30 percent in April, but his vote intention clawed back to almost 35 percent in June, barely below that of Fernández.</p> <p>As the reported number of undecided voters drops and polarization increases, the two main candidates have been gaining ground in polls. But Macri has improved at a faster pace than Fernández.</p> <p>Yesterday, a Management &amp; Fit poll went as far as saying Macri was even with Fernández in the primaries, according to <a href="https://www.perfil.com/noticias/politica/elecciones2019-encuesta-virtual-paridad-dos-puntos-ventaja-mauricio-macri-segunda-vuelta-alberto-fernandez.phtml">one of its measurements</a>. A tie in the first round of voting is generally seen as favorable to Macri’s chances of winning later in the race.</p> <p>Although Management &amp; Fit’s result could be an outlier (and the report included some anomalies like a runoff scenario in which Macri, Fernández, undecided and blank votes totaled more than 100%), the news only served to heighten the enthusiasm of those invested in Argentina on Wednesday afternoon, as the stock market reached new yearly highs.</p> <h2><strong>Feedback loops</strong></h2> <p>Argentine assets have been recovering ever since the IMF revised the terms of its agreement with the country’s Central Bank. With more short-term firepower to stop any run against the country’s currency, the peso strengthened from nearly 45 per US dollar in May to below 42 in July.</p> <p>The Merval stock market index (measured in US dollars) also rose from 670 basis points in the beginning of May to 1024 on yesterday’s close.</p> <p>Most analysts agree there’s some kind of positive feedback loop between a stronger peso and Macri’s improving numbers in the polls (and in August’s primary elections), as Argentines were more likely to vote against the government if the run against the currency continued.</p> <h2><strong>Words of caution</strong></h2> <p>Of course, one doesn’t need to go back in time by much to remember a scenario that looked exactly opposite to the current one.</p> <p>Back in April, with the Argentine peso weakening, an infamous Isonomía poll showed Macri down by 9 in a potential November runoff against Kirchnerism. That report (coupled with other factors), triggered an international <a href="https://gettheessential.com/economy/2019/04/25/bonds-collapse-brings-back-talk-of-debt-restructuring">selloff of Argentine bonds</a>, seen as more likely to be restructured in case of an opposition win. Argentine stocks also plummeted at the time.</p> <p>“I think the perception was not fully correct in either of those two moments. Markets have been proving to be as premature and over-reactive as any Argentine,” Federico Aurelio, an analyst at the Aresco political consultancy agency told <em>The Essential</em>.</p> <p>“What I am seeing is that the market’s sources of information are too benevolent regarding the destiny of the ruling coalition. By this I don’t mean that Cambiemos is collapsing or anything like that. But according to our measurements this is still an absolutely open race,” Aurelio said.</p> <p>Just as investors might have panic sold Argentine assets on the cheap in late April, fears of overvaluation could not be unreasonable in the current climate.</p> <p><a href="https://elcanciller.com/nota/9434/la-polarizacion-total-lleva-a-un-triunfo-en-primera-vuelta-con-el-45-de-los-votos">According to Javier Alvaredo</a>, ACM consultancy agency’s director, “the market is operating, be it with solid data or based on its own desires, as if Macri’s re-election chances were very significant.” The latest rise in asset prices, Alvaredo believes, “could only be explained by Macri having a 70 to 80 percent chance of winning, a figure which no poll is showing.”</p> <p>But other factors might have also changed. “It might also be that what they are celebrating is the hyper-moderate nature of Alberto Fernández candidacy,” Alvaredo argued.</p> <h2><strong>Fernández&#8217;s strategy</strong></h2> <p>Investors were extremely fearful of a return of Cristina Kirchner to power, and her decision to step down and run as VP for the more centrist Alberto Fernández could also be playing a role.</p> <p>“Both presidential tickets, Fernández-Fernández and Macri-Pichetto, were liked by the markets,” Di Giorno said. “Listening to Fernández’s economists eased a lot of minds. It’s not that investors think Fernández advisers are (former US Federal Reserve head) Ben Bernanke, but they expected something worse.</p> <p>“I think if the Argentine markets sell off again, there’s going to be more investors willing to buy the dip. On the one hand, their worst-case scenarios were based on a Cristina Kirchner presidency. In addition, this recent run up has allowed some of these funds to unload part of their Argentine portfolio, so they are not as over-exposed to the country as they were a few months ago,” Di Giorno argued.</p> <p>Fernández will have to bet on something other than the country’s financial weakness to improve his chances if the current dynamics don’t change. But he is not far from the prize either.</p> <p>According to Aurelio, Macri has some advantages in case of a potential runoff, but in a polarized race it might not end up happening. Only 45 percent of the vote is needed for Alberto Fernández to avoid a head-to-head definition with Macri in November, and Fernández is not far from those figures.</p> <p>“Peronism has been in the lead for the primaries since April. It all depends on the economy, but if that lead expands, it might prove impossible for Cambiemos to recover,” Aurelio said.</p> <p>

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Ignacio Portes

Ignacio Portes is The Essential's General Editor. Former Economy editor at the Buenos Aires Herald, he has also written for publications such as Naked Capitalism, NSFWCorp and Revista Debate.