The markets in Argentina enjoy calm after the shocks that last year mired the economy, a stability typical of the times prior to elections and helped this time by a more favorable external climate and an improvement in domestic conditions.
The behavior of the S & P Merval index shows the good mood of the investors: on Thursday the leading panel of the Buenos Aires Stock Exchange touched a historical high of 43,292 units and so far this year the indicator accumulates a gain close to 40%.
The positive climate has also benefited Argentine public bonds and the country risk index is around 790 basis points, from the maximum reached this year of 1,008 units, at the beginning of June, and a minimum of 635 points, registered at the beginning of February. past.
In the currency market, the price of the dollar has remained relatively calm for several weeks, in contrast to the continuous shocks that last year had to mistreat Argentina.
In April 2018, a currency crisis due to a combination of external and domestic factors triggered a process of generalized recession in the economy with high inflation and a sharp depreciation of the Argentine currency, which forced the Government of Mauricio Macri to resort to the International Monetary Fund (IMF). .
This Friday, the US currency traded at banks and exchange houses at 42.60 pesos for sale per unit, while in the wholesale market it was marketed at 41.60 pesos, well below the peak of 45.97 pesos recorded at the end of last April.
Several factors lined up for this calm in the markets.
On the external front, the appetite for emerging markets improves the prices of local assets, but also those of Brazil, Argentina's largest trading partner, whose economic impact has a direct impact on Argentina.
And a drop in the short-term rate in the United States could accentuate that trend.
"We observed a strong revaluation of the real in Brazil, which drilled the level of 3.80 per dollar, this helps Argentina a lot," said economist Salvador Di Stefano.
For the expert, the "very firm" bullish trend of the Buenos Aires Stock Exchange is also partly a subsidiary of what happens in Brazil.
"The São Paulo stock market has been surpassing highs, it is probable a quick approval of the pension reform in Brazil, an ambitious program of privatizations and an investment incentive law that will help to grow at a faster pace." In summary, Brazil is dragging Argentina " , he claimed.
Domestically, stability is supported by a "mix" of factors, including the IMF's endorsement of a greater margin of intervention of the Central Bank in the exchange market, which has reduced volatility, high yields of the assets in local currency and a more favorable electoral perspective for the ruling party ahead of the August primaries and the October presidential elections.
In addition, the economy, which last year fell by 2.5%, and that in the first four months of this year accumulated a decline of 4.6%, has begun to give signs of having touched floor and slowly lean out a recovery .
"Slowly, macroeconomics shows signs of stabilization, the exchange rate tranquility and the tariff freeze help inflation to moderate," Management & Fit consultancy said in a report on Thursday.
In the middle of the campaign, in which Macri is betting on a better economic scenario to achieve his re-election, the Government supports the activity by progressively lowering the benchmark rate – which is around 59% and which has been a drag on productive credit – and granting loans at lower rates and subsidies to encourage consumption.
In addition, the agricultural sector, one of the economic engines of the country and that in 2018 was hit by one of the worst droughts in decades, now presents a much more favorable scenario, with a record harvest of 145 million tons that already shows in a strong income from foreign exchange for exports that helps to keep the exchange market stable and has positive effects on economic activity.
The best economic mood underpins the expectations of the ruling party in a scenario where, according to polls, there is a strong polarization in the electorate between Macri and Peronist Alberto Fernández, who will take as a vice-president candidate the former president Cristina Fernández de Kirchner (2007-2015 ).
"It's about the finance-economy-policy circle, which turns virtuously," Management & Fit said.
According to the consultant, the election is now shaping up more evenly and, with one month remaining for the primaries, the Government's objective is to shorten the margin to the minimum.
Argentine Finance Minister Nicolás Dujovne said on Friday that "the better results" the government has in economic matters, "the easier it will be to sustain this virtuous circle that begins to produce confidence, low country risk, stability, deceleration of inflation ".
Therefore, I trust, the Executive expects the Argentines "accompany" with their vote in August with "a good result in the primaries that augurs Macri's victory in October."
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