Argentina’s stocks and bonds tumbled after presidential candidate Daniel Scioli’s selection of a close aide to President Cristina Fernandez de Kirchner as his running mate added to concern that she will remain influential and delay changes favorable to investors.
Barclays Plc lowered the nation’s debt to neutral, saying in an e-mailed research report that the selection of Carlos Zannini would constrain Scioli, the governor of the Buenos Aires province and the favorite in polls to win the October presidential election. Scioli said Tuesday that Zannini, who has served as legal secretary for 12 years, represents continuity with Fernandez and her predecessor and late husband, Nestor Kirchner.
“The market is pricing in that all the imbalances Argentina has to fix -- related to the fiscal deficit, excessive subsidies, the overpriced peso and other issues -- will be delayed,” said Juan Manuel Vazquez, the head of equity research at Buenos Aires brokerage Puente. “The market was expecting a quick change, and now we’re seeing that the imprint of Kirchnerism is sticking around longer.”
Argentina’s benchmark 2033 bonds plunged 2 cents to 98.96 cents on the dollar, the biggest decline since December. The extra yield investors demand to own Argentine bonds over U.S. Treasuries widened the most in major emerging markets, according to JPMorgan Chase & Co.’s EMBIG Diversified indexes. The Merval, the country’s benchmark stock index, slid 1.5 percent, with 9 of its 11 members down.
The nation’s American depositary receipts tumbled, with Grupo Financiero Galicia SA falling 6.5 percent, Empresa Distribuidora y Comercializadora Norte down 5.6 percent and Cresud SACIF slumping 4.1 percent.
Stocks still have room to fall as much as 20 percent if Fernandez has a strong pull on the new government, Raymond James said in a research note.
“A strong Kirchnerist influence -- and the appointment of Zannini could be the first sign of this -- would reduce the new president’s room for maneuver, thus hindering the introduction of the corrective measures required to resume economic growth,” Raymond James analysts Federico Rey Marino, Santiago Wesenack and Fernando Suarez wrote.
The appointment tightens Scioli’s links with Fernandez and strengthens his chances of winning in the first round of voting Oct. 25, according to Eurasia Group.
Zannini, who was a member of the Communist party, was jailed during the 1976-1983 military dictatorship. After the return of democracy, he moved to the Santa Cruz province in Patagonia, where he met the Kirchners and worked with them as an adviser as they rose to power. Zannini didn’t reply to a telephone call seeking comment.