Argentina Traders Try to Make Sense of Kirchner's Back Seat Run

(Bloomberg) -- Argentina investors grappled to understand whether a surprise announcement by former President Cristina Fernandez de Kirchner that she would run for vice president rather than for the top job was good or bad for markets.

After falling as much as 0.8 cents early Monday, bonds pared most of their losses by the end of trading, with some securities even climbing. The yield spread over U.S. Treasuries narrowed 30 basis points, reversing an earlier widening. Bond risk measured by five-year credit-default swaps, which surged during the day, was down by 35 basis points by close of trading. The peso fell, though just 0.4%, while stocks ended higher.

Kirchner’s running mate, Alberto Fernandez, is a career politician with no experience on the national ballot. Still, he has broader appeal in the amorphous political movement known as Peronism, where Kirchner’s left-wing, polarizing positions created divisions and the possibility of rival candidates.

That’s led analysts and investors to wonder whether this means that Kirchner was polling worse than previously anticipated, or if this is a move aimed at gathering support beyond her core base.

Read More: What other Peronist politicians are doing in response

Here’s what analysts are saying:

Ilya Gofshteyn, a strategist at Standard Chartered in New York

• "We should recognize Cristina Fernandez de Kirchner’s decision for what it is -- an admission of weakness"
• "She wouldn’t be running as VP if she thought she could win at the top of the ticket"
• "The appropriate playbook for this development is what we just observed in Brazil last year. A tainted establishment leftist attempting to pass on their support to a less tainted acolyte"

Patrick Esteruelas, head of research at EMSO Asset Management, which has $6 billion under management

• "In terms of how it alters the political landscape, there’s more questions than answers -- Cristina has kicked the table but we don’t exactly know how the pieces will fall back"
• "You could argue that risks of a disorderly default are somewhat lower, to the extent that Cristina has opened up the ticket, brought in one of the more pro-establishment voices within the Kirchnerist movement and accepted some degree of policy moderation"
• "The bearish case is that there are a lot questions to be answered -- first and foremost, this team has huge internal inconsistencies"
• "If she’s not able to open up the ticket by bringing in more moderate voices, she may end up hardening her ceiling and softening her floor, she’s replaced herself with a deeply uncharismatic candidate"

Michael Roche, a strategist at Seaport Global Holdings in New York

• "There’s been a more moderate tone" from Alberto Fernandez
• "No capital controls, respect for the IMF, cooperative talks with bondholders -- this is less frightful than was foreseen"

Marcos Buscaglia, head of Alberdi Partners in Buenos Aires

• "Nobody resigns to a presidential future out of strength but out of weakness: the announcement is a sign of weakness by Cristina Kirchner."
• "Her decision shows that, to win, Cristina Kirchner thought she had to open a negotiation line with the more moderate Peronists and to do that, she could not head the presidential ticket"

Andres Vilella Weisz, portfolio manager at Balanz Capital in Buenos Aires

• "Any move by Cristina distancing herself from the presidency is marginally positive for Argentine assets"
• "It’s a reaction in between neutral and positive -- that there’s a scenario of a more moderate Cristina is slightly positive"

Daniel Chodos, head LatAm sovereign credit strategy Credit Suisse

• "The market reaction was in line with expectations of a limited sell-off as markets digest the political developments domestically."

--With assistance from Jorgelina do Rosario and Daniel Cancel.

To contact the reporters on this story: Patrick Gillespie in Buenos Aires at pgillespie29@bloomberg.net;Justin Villamil in Mexico City at jvillamil18@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Carolina Millan, Julia Leite

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