2023-07-01 03:11:19
In our last columns we have been suggesting that the configuration of the electoral scenario was going to have an influence on the economic situation this year, especially on the price of financial assets. Finally that moment arrived the previous Saturday and in our opinion the scenario that has been established is positive. In fact, the market had been showing positive expectations, which were accentuated once the contenders for the electoral bid were known.
A positive fact is that the central protagonists of the rift, former presidents Fernández de Kirchner and Macri, are not from the game, which represents an important element in view of leaving behind this political phenomenon that does not allow defining a medium and long-term agenda. A term that, when faced consistently, allows us to leave behind the various problems that affect our economy and put an end to this pendulum cycle of marches and countermarches that is so pernicious. As important as not competing is the fact that, beyond the bans (December 2022) and defeated egos (March 2023), facing a general election both appeared as losing candidates.
Another factor that the market began to evaluate positively was that the opposition with a more business-friendly orientation had been emerging as the favorite to win the elections. This perception was gained from the growing difficulties that the Government faced both in the inflationary field and in the external sector. This expectation of a change in the cycle, in addition to the unquestionable potential of our country in terms of factors, encouraged a strong appreciation of the assets of the business sector in general.
Indeed, since the beginning of this year, the S&P Merval index has been showing sustained growth and has exceeded its historical maximum measured in pesos, with a current value of 416,466 points. This represents an accumulated nominal increase of 106%, which in real terms translates into a gain of 36%. While said index, measured in dollars (at the exchange rate counted with settlement), accumulates an increase of 40%. Looking at individual companies in the international market, behaviors that are just as impressive or even more impressive are observed. The energy companies were the ones that showed the best performance, such as YPF, which shows a year-on-year increase of 305% in the price of its ADR since June 2022. The assets of financial institutions are a little further behind, but even so with very positive returns, such as Grupo Financiero Galicia, which has accumulated a 70% increase in its valuation this year.
The deterioration of the indicators that were affecting the electoral possibilities of the ruling party also operated so that public bonds might not even remotely replicate the performance of corporate papers. From the beginning of this year until May, the bonds presented falls in their parities. The prices of all sovereign bonds in dollars decreased significantly, with the sole exception of the GD30D, which experienced a 2% decrease in its price compared to December 2022. Later, as the electoral panorama consolidated, the began to notice a recovery during the course of June, returning to touch or exceed the values seen at the end of the previous year. In fact, as of the closeness of the closing date of the lists, in this last month it was possible to show an increase in all the bonds, with rises that, as a whole, averaged 25%. The confirmation of the candidacy of S. Massa has favored what happened in recent days, when the bonds showed average increases of 6% in the last week. In the first place, because the Minister of Economy represents by quite a margin the visible face of the most moderate wing of the coalition now called Unión por la Patria. In this way, expectations of even greater deviations in the management of the economy were reduced and that some support from multilateral organizations would finally materialize to reach the elections without a worsening of the situation. Projecting to a longer term, another positive factor is given by the support that the minister aroused from a group of relevant actors within the PJ, such as governors, mayors, union leaders and even actors from the business sector. Thus, his support exceeds the mere support of CFK, which makes him less dependent on this faction in the future. Finally, beyond the polls, his nomination was promoted to make the space competitive by people who, following this process, will continue to have the responsibility of governing. Even in the scenario of a defeated ruling party, this configuration augurs a more cooperative opposition in the future. A kind of homage to the good sense outlined in the unique synthesis of Baglini’s theorem.
Turning now to the opposition camp, the first piece of information is that the structure presented by J. Milei does not reflect a solid scheme and even conflicting internal situations emerged. Thus, by reducing the chances that extreme proposals will be imposed, a scenario of future political instability becomes less likely, as occurred for example in Peru, Ecuador, Colombia, Chile and Bolivia. The risk of a sudden and very strong devaluation astride the eccentric dollarization proposal of the libertarian candidate is also reduced.
The other, more relevant piece of information is that the main opposition coalition, and the main candidate to win the presidency, has regained centrality and the closing of the lists and the definition of the contenders and their structures also served to alleviate tensions and direct energy to more propositive than conflicting issues. It will be interesting to see what happens in this dispute, which by far will be the only competitive one and will attract the most attention from public opinion and the market. Although due to its nature of internal dispute, a competition can be expected for who is most different from Kirchnerism, the truth is also that the key to success in facing the general election will also go through giving a message of political solidity, consistency, and a hopeful economic message. to future.
We understand that variables such as inflation and its impact on the standard of living and social indicators greatly deteriorate the electoral chances of the ruling party. It might be said that in a normal country the ruling party would not have any electoral chance. However, one element that is not being taken into account is that the main opposition force has been the government not so long ago, and in light of various indicators that experience was as unsuccessful or even more so than that of the current government. In a brief comparison, MM management was poor in terms of activity, consumption, and investment. For its part, AF management was more deficient in terms of price stability. Both were negative in terms of purchasing power of wages
In summary, we understand that, with a view to the STEPs, should the renegotiation with the Fund be successful, there is still room for this bullish rally to be sustained, albeit in a limited manner. Once the final contenders are known, that trend might be reinforced.
*Founding partner of ACM consultancy. Head of advisers of the Ministry of Economy.
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