Analysis: Argentina election lures risk-taking investors to long-odds gamble

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Argentina's presidential race is enticing some risk-taking investors to place bets despite the long odds that a new government can steer South America's second-largest economy out of its deep crisis.

While most traders are waiting on the sidelines, anxious about the election and unsure of libertarian frontrunner Javier Milei, some daring bond investors are moving in.

Reed said the investment firm had increased its allocation to Argentina since Milei's shock first-place finish in an open primary election in August, though she conceded the risk was high after a history of sovereign debt defaults - the ninth came in 2020 - and falling bond prices. Bullrich, who was a minister in former President Mauricio Macri's market-friendly government, is also pledging to cut the fiscal deficit and halt money printing. Massa, who represents a more centrist bloc in the ruling coalition, has pledged a zero deficit for 2024, though he has opened the spending taps recently to bolster his election hopes.

Fernandez de Kirchner, who established currency controls and presided over a sovereign debt default during her presidency, has taken a back seat in the run-up to the election. The depressed values offer another reason to be bullish on Argentina's debt, said Thomas Haugaard, a portfolio manager on the emerging markets debt hard currency team at Janus Henderson Investments in Copenhagen.

Morgan Stanley said in a recent note that it wasn't yet time to turn bullish on Argentina, despite a recent drop in bond prices, though a "path to the bull case scenario remains."

 

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