Argentina presidential election scenario analysis

Summary

Toward the end of last week, we laid out our scenarios for Argentina's primary elections (PASO). Heading into the PASO, we believed voters would reject traditional Peronism given poor and deteriorating local economic conditions, and favor a return to market and business-friendly policies. While voters did indeed reject the Peronist coalition, support was directed toward the unorthodox policy platform of Javier Milei rather than the investor preferred Juntos por el Cambio (JxC) coalition. Milei's outperformance has already prompted volatility in local financial markets including a sharp peso devaluation, equity market selloff as well as a downturn in government debt markets and renewed risks of a sovereign debt default. In contrast to the mixed performance of political opinion polls, PASO elections tend to be very predictive of voter intentions for official elections. Given Milei's outperformance this past weekend, we are revising our base case scenario for Argentina and now expect a Milei victory in official elections later this year. In our Milei victory scenario, we expect local financial markets to remain under pressure and for another sizable peso devaluation to materialize in immediate aftermath despite Milei's policy platform being unlikely to be fully implemented. Our new base case scenario as well as alternative election outcomes and potential market reactions are on the following page.

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