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Argentine markets gripped for second day by election-related fears
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Argentine markets gripped for second day by election-related fears

BUENOS AIRES, August 14 ------ Argentina’s peso closed weaker again on Tuesday following a second day of market turmoil triggered by opposition candidate Alberto Fernandez’s landslide victory in a primary election that dealt a severe blow to President Mauricio Macri’s re-election chances. The peso closed 4.29% lower at 55.9 per U.S. dollar after touching 59 to the dollar earlier. The currency had hit an all-time low on Monday of 65 to the dollar, a drop of 30%, on fears that a Fernandez government could take Argentina back to interventionist economic policies.

The central bank has sold $255 million of its own reserves since Monday to help steady the currency. “The market thinks Fernandez will likely default and impose capital controls and renegotiate with the IMF. In a nutshell, the market thinks Fernandez is the return of populism,” said Claudio Irigoyen of Bank of America Merrill Lynch (BAML). Fernandez, who has former President Cristina Fernandez as his running mate, pulled off a stunning upset in the primary with a wider-than-expected 15-point lead over Macri, a free-market proponent.

Monday’s crash in the peso unnerved global equities investors, with markets already jittery over the Sino-U.S. trade war and protests in Hong Kong. “Yes, Argentina is a small economy. However, the last thing global markets want to see is another market-friendly government fall to populism and/or geopolitics,” said Rabobank strategist Michael Every. A Brazilian hedge fund was among the casualties of Monday’s market rout on Argentine assets, with at least 75% of its equity exposure, suffering losses between 25% and 59%.

Newfoundland Capital Management of Sao Paulo was hit with a loss on paper of around $55 million, as its bets on four Argentine companies in agribusiness, natural gas, energy distribution and telecommunications imploded. The weaker peso quickly translated into higher prices on Argentine store shelves. Some shops selling household appliances in the capital Buenos Aires, at a loss for how to price their products amid the fluctuating exchange rate, stopped printing price tags and instead asked customers to inquire.

There was also doubt over the future of an “essential goods” program introduced by Macri in April to fix low prices through October for 64 basic food products. The secretariat of trade did not respond to a request for comment on whether the government would renegotiate the prices with companies. Buenos Aires resident Florencia Nagy, 31, said, “The atmosphere has been tense” in the city. “A lot of anger, a lot of confusion, many people thinking that leaving the country could be an option,” said Nagy, who said she voted for candidates from more than one party in the primary.

Source: reuters.com