Argentine Peso Is the Global Leader After Macri’s Election Choice

(Bloomberg) -- The Argentine peso, long famed as the world’s worst performing currency, posted its biggest gain since April after President Mauricio Macri unveiled an opposition leader as his running mate in October’s vote, potentially broadening his appeal and boosting his chances of reelection.

The peso leaped 2.4% to 43.67 to the dollar Wednesday, making it the best performing currency in the world on the day. Yields on Argentina’s century sovereign bonds fell 5.5 basis points to 9.72%, after tumbling 47 points late yesterday following the announcement.

The peso had tumbled this year on rampant inflation and concern that former President Cristina Fernandez de Kirchner would return to power. Kirchner, who now plans to run as vice president to Alberto Fernandez, is regarded as a populist who may seek to re-impose currency controls and renegotiate the terms of an International Monetary Fund loan. Yesterday’s announcement of Miguel Pichetto as Macri’s running mate makes that less likely, said TPCG Valores SA chief economist Juan Manuel Pazos in Buenos Aires.

It’s “a game changer both in the dynamics of the campaign and, more importantly, after the election,” Pazos wrote in a note to clients. “If the government gets re-elected, Pichetto could be a key player in building the legislative coalition required to pass the next administration’s agenda.”

Here’s what analysts are saying about the impact on emerging markets:

TPCG Valores’ Pazos

• Recommends additional duration risk on the USD curve given possibility election could be done by August as scale tips toward ruling Cambiemos alliance
• Expects compression to concentrate in front-end and belly of the local law curve, with 2020-33 bonds benefiting the most
• Announcement stole the spotlight from Kirchnerism and will probably nip away at Kirchner’s move to attract governors

Hernan Ladeuix, strategist at AR Partners SA in Buenos Aires

• Pichetto may not add votes right away for Macri, but “significantly improves governability until and after the elections”
• Announcement improves the odds of financial stability to continue, helping the ruling alliance
• Government will try to win support from Peronist provincial governors and could “radically change the national political landscape” if successful
• With that support, Cambiemos have a better chance at winning, which would remove the high electoral risk being discounted in asset prices

Fernando Jorge Diaz, economist at Citigroup Global Markets in New York

• If markets continue to react positively, “it could have a self-fulfilling effect: lower financial tension could boost the economy, increasing the likelihood of a Macri victory (which remains as our base case)”
• Doesn’t see Pichetto adding votes to Macri
• Expects moderate Peronists to drop their candidacies, adding to more polarization between main tickets

To contact the reporter on this story: Sydney Maki in New York at smaki8@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Philip Sanders, Alec D.B. McCabe

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