Ruling-party candidate Daniel Scioli will have to soften his defense of Argentina President Cristina Fernandez de Kirchner’s policies to win a first-round vote in the October election, investors say.
While the 58-year-old governor of Buenos Aires emerged as the clear winner in Sunday’s presidential primaries, he fell short of the share he’ll need to avoid a runoff.
“Scioli’s rhetoric will move more toward the center,” said Daniel Freifeld, a partner in Washington at Callaway Capital Management, which holds Argentine bonds. “A large majority of the population is favoring some form of change. I think he’s going to give that message, and it’s going to be loud and clear.”
Whoever replaces Fernandez on Dec. 10 will have to act swiftly to address a widening budget deficit, scale back currency controls and end Argentina’s near-pariah status in financial markets following defaults last year and in 2001. While the opposition’s Mauricio Macri, 56, has vowed to move decisively to correct economic imbalances, Scioli has called for a more gradual approach while keeping most of the government’s policies.
Argentina’s dollar bonds due in 2033 rose Aug. 10 to an eight-week high of 100.75 cents on the prospects for a runoff and competitive election. The notes have since fallen to 100.25 cents.
Scioli received 38.4 percent support Sunday compared with 30 percent for a coalition led by Macri and 20.6 percent for 43-year-old dissident Peronist Sergio Massa. Scioli’s total was slightly better than the average 7-point advantage that pre-primary polls had predicted.
For him to avoid a runoff Nov. 22, he must win 45 percent of the votes in the first round or more than 40 percent with a 10 percentage point difference over the second-place candidate.
When all the ballots cast against the ruling party are combined, more than 60 percent of voters want a change, Freifeld said.
“Scioli has no other choice but to move to the center or face the possibility that Macri wins,” said Luis Caputo, president of Axis Inversiones in Buenos Aires. “For the market, it’s a win-win since either of those options are good.”
If Scioli plans to modify his rhetoric and appeal more to undecided voters, he didn’t start right away. He deflected questions at a press conference about a loss of support for the government since 2011 -- when Fernandez won 50 percent of the primary vote -- and whether he would turn more to the center.
“What’s the center? What’s the right?” Scioli said Aug. 10 in Buenos Aires. “I’m going to do the right thing. Have faith and confidence that gradually the country will be better each day.”
Scioli’s big challenge will be to take votes from Massa’s alliance, according to Alejo Czerwonko, a strategist at UBS Wealth Management. Their supporters are typically Peronists who oppose the current administration.
“If Scioli is able to lure more than a quarter of the people who voted for Massa’s coalition, then the first round is his,” Czerwonko said. “Otherwise, we go to the second round. And the other aspect to watch is whether the opposition can unite.”
Morgan Stanley upgraded its recommendation for Argentine debt to overweight last week on expectations that bonds could return 30 percent through the end of 2016, even if there’s a slow economic adjustment under Scioli.
The battle for the middle ground and undecided voters will ultimately determine who wins the election, according to Caputo.
“This should only accelerate” Scioli’s effort to distance himself from “Kirchnerism,” he said. Kirchnerism is the term used to describe the policies of Fernandez and her late husband, Nestor Kirchner.