2023-11-17 01:03:19
The definition is imminent. This Sunday the Argentines They will define their next president. However, the electoral contest brings with it one of the most important unknowns: what will happen to the dollar exchange rate following the runoff between Sergio Massa (Union for the Homeland) and Javier Miley (Freedom Advances).
There is only one financial round left before the momentous second round. In a year of surprises, in which the surveys were insufficient to predict, the market is unable to define its bets.
The election seems close and practically impossible to predict, but analysts of the City of Buenos Aires choose to look a little further and wonder what will happen once we know the numbers of the ballot boxes.
Different reports focus on the different scenarios that open for the market the next day. A very particular next day, in which there will be no local market because it is a holidaybut that in any case will provide information on the operations with Argentine bonds and stocks that are carried out on Wall Street.
Broadly speaking, the analyzes outline four scenarios: two in case of a victory for Massa and two in case of a victory for Milei. These bifurcations regarding the two possible results are given by what results from the winner’s first words.
Analysts imagine very different reactions from the market depending on what direction the president-elect takes. There is the possibility of meeting a Massa continuity of the economic line that he outlined in his year as Minister or an elected president who opt for an orthodox turn. And, faced with the other possible result, they see two different Milei: a maximalist launched into dollarization and other, moderate and with greater management capacity.
If Massa wins, what will happen to the dollar
Moderate mass
A report from Portfolio Personal Inversiones (PPI) assigns a 50% chance of a victory for Sergio Massa. A coin toss. Once this potential scenario has been specified, meanwhile, it assumes that There is a 70% chance that once he becomes president we will see a moderate Massa.
This moderation includes, in addition to signs of significant changes in the course of economic administration, the report assumes speed when defining names for the economic cabinet. And names “from the opposition”, as the candidate himself announced in recent days.
In this case, PPI sees a scenario bearish for the dollar counted with liquidation and, with it, rather calm in the parallel dollars. “Any mention of an Economy Minister linked to the opposition will be essential, since it would be a shortcut to buy credibility, which is lacking, to face a change of approach. In this case, we do not see much room for the cash with settlement to continue climbing, rather we can imagine a lukewarm cut that would not exceed 5% in the week,” defined the analysis prepared by a team led by Pedro Siaba Serrate.
Mass radicalized
Conversely, PPI assumes a 30% chance of a radicalized Massa, understanding as such an elected president who does not show clarity when defining a turnaround with respect to the current administration.
“In this case, we see a spot with bullish settlement, which might rise 5/10%, but without reaching the crisis values of October 2020 and October 2023. We understand that this last maximum, from $1,090 today, discounted a first place for Milei in the general elections and, therefore, dollarization. Once the dollarization project has been removed from the scene, we do not find elements that validate these real dollar levels,” the report added.
As an aggregate, the stock exchange company adds its forecast for the official dollar: will move up no matter what. The timing is not clear, whether it is immediate or following December 10, but for PPI analysts it is inevitable. “The adjustment to the official exchange rate is inexorableeven with a cash settlement contained by a pro-market discourse and a decompressing exchange gap,” the report maintains.
For its part, a report from Romano Group signed by Salvador Vitelli outlines two versions of an eventual President Massa. One with credibility and one without credibility. In principle, it does not mention the possibility of a particular jump in the versions in the hours following the election result, but that is immediate. When analyzing the measures you will need to take, the ability and willingness to apply them will be key.
“The unknown will be How long can the stocks and capital controls be released? Demands that will come from abroad and from the majority of multinational companies that operate locally. In the short term we see it as highly unlikely and this turns out to be a central issue because if you decide to maintain it over time, the results are visible: exchange rate gap, no accumulation of reserves, zero growth and higher inflation,” the analysis states.
From Outlier, Gabriel Caamaño and Juan Truffa dedicated a report to each candidate, with an eye toward the challenges that each one will face. With very different perspectives regarding whether it is a Massa who applies a “rationality at the margin”, small orthodox and gradual measures, or one that takes an “orthodox turn”.
But as for the day following, meanwhile, a victory for Massa would in principle move the market little according to Caamaño. But not because investors organize celebrations but rather because, contrary to what surveys indicate, the prices of different dollars, stocks and bonds seem to assume that the current Minister will be the one who will win. If so, then market prices would not need large movements.
If Milei wins, what will happen to the dollar
Milei moderate
If Javier Milei were to become president-elect, the analyzes vary for the immediate future. PPI gives an 80% chance that an elected Milei will opt for moderation.
“From an economic perspective, Milei should give signs of resignation or postponement of dollarization. Although we understand that such an announcement is not easy as it is one of his main campaign slogans, it will be enough for the market if it is classified as a second generation reform or softened as a currency competition. In any case, the discursive turn may not be simple, since dollarization is intrinsically related to the closure of the Central Bank,” the report states.
In this scenario, in addition, the integration of technical staff from the PRO to the Milei Government is assumed, reducing uncertainty in governanced. But, in any case, they understand that the result would be marginally bullish for parallel dollars.
“We believe that abandoning dollarization would limit the downside of the peso (rise in cash with settlement), as well as the perception of weak governance would limit the upside (cash withdrawal with liquidation).
Milei radicalized
The analysis of 1816 is more exhaustive. The consulting firm understands that a victory for Milei, with northern reaffirmation of dollarization, it is “chaotic”.
“Economically, because it only seems possible to dollarize with an exchange rate so high that it implies a probable hyperinflation.”says the report. “Financially, because banks would suffer considerable losses on their bonds in pesos” and “the risk of bank runs would increase.” And finally, politically chaotic, because a potential confrontation with the Legislative Branch “might lead to an institutional crisis.”
For Outlier, it is clear that the short term would be one of great exchange volatility in case of a Milei victory. “If Milei wins, you have the potential to reconfigure your portfolios: The market is not in Milei win mode. Search for coverage and dollarization is expected”Caamaño said.
Finally, according to analysis by Vitelli of Romano Group, Milei’s victory generates the risk of a jump in the dollarespecially if it is a Milei that fails to generate trust in its program.
“If the market distrusts the treatment of that stock of pesos [que Milei consiga dólares suficientes para cubrir los pasivos del BCRA]we may possibly see a short-term overshooting of the dollar (already released) trying to adjust the conversion rate accounts, to the detriment of the peso,” the report analyzed.
“If the market trusts that the beginning of dollarization must be accompanied by a very high exchange rate ($1,000 to $1,200, very high in real historical terms)added to a very rigorous fiscal adjustment (around 5% of GDP), capable of offering a window of liquidity abroad (the projections regarding rates for 2024 by the Fed improved) and a generation of dollars for the approximate equivalent of USD 20,000 million of foreign exchange settlement in the countryside and energy, in this scenario we believe that cash with settlement of these levels can result in a stable value, without necessarily tending to a strong depreciation of the peso,” Vitelli analyzed.
With information from Infobae
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