Argentine Stocks Lead World Declines as Election Rally Fizzles

  • Pampa Energia, Galicia contribute most to Merval's slump
  • Bonds pare gains after climbing to highest in eight years

Argentine stocks led world losses, after rallying to a record high, on speculation president-elect Mauricio Macri will face challenges such as unwinding currency controls at a time when foreign reserves are at a nine-year low. Bonds pared gains.

The benchmark Merval stock index sank 5.1 percent to 13,448.67 at the close in Buenos Aires, led by utility Pampa Energia SA and financial company Grupo Financiero Galicia SA. Bonds due in 2033 climbed to an eight-year high before paring their advance. Global X MSCI Argentina, a U.S.-listed exchange-traded fund that tracks the performance of the nation’s American depositary receipts, fell the most in almost two months. The peso was little changed.

“There was a big profit taking on expected volatility ahead of the measures that the next government will have to take,” Mariano Tavelli, president of Buenos Aires-based brokerage Tavelli & Co. “It’s the classic buy on the rumor and sell on the news.”

Argentine stocks have surged 57 percent so far this year on speculation that the end of the 12-year rule by Cristina Fernandez de Kirchner and her late husband will herald in more market-friendly policies and a return to international markets that could boost the nation’s depressed credit rating. Still, Macri’s challenges are substantial with the budget deficit soaring to the widest in three decades and inflation, as tallied by private economists, running at an annual pace of more than 20 percent.

Traders had piled into Argentine assets since the first-round vote on Oct. 25 when Macri posted a better-than-expected performance, setting up a runoff with Daniel Scioli of the ruling party. Macri won the second round Sunday with 51.4 percent of the votes and will take office Dec. 10 promising to undo Fernandez’s economic policies and seeking a fast resolution to the country’s legal dispute with holdout creditors.

While the stock market slide is a sign of shorter-term investors looking to benefit from the rally over the past few weeks, long-term expectations have improved, said Christian Reos, the head of research at Buenos Aires-based brokerage Allaria Ledesma & Cia.

"From now on, the new bet is that Argentina will finally be able to grow long-term with sustainable economic policies," Reos said.

If Macri manages to rebuild international reserves, achieve a single exchange rate for the peso and raise utility rates to pare subsidies, the market may rally again, according to Tavelli.

"There may be further upside to asset prices, but likely more gradual as investors will want to see how effective the new president is politically," Yacov Arnopolin, a money manager at Goldman Sachs Asset Management, which oversees about $36 billion in emerging-market debt, said before Sunday’s vote.

The price of benchmark securities due in 2033 -- which includes interest owed since last year’s default -- rose 0.6 cent to 114.48 cents on the dollar. Securities linked to economic growth rose 6.4 percent to 10.65 cents. The peso fell 0.1 percent in line with the central bank’s daily crawling peg to 9.67 per dollar while the blue-chip swap, an implicit exchange rate derived from the swapping of peso and dollar-denominated financial assets, gained 1.4 percent to 14.6 per dollar.

Pampa Energia and its subsidiary Empresa Distribuidora y Comercializadora Norte SA fell more than 10 percent in part on a call option that will require the energy firm to issue additional shares.

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