Argentina stock investors unconvinced by Bessent bailout

Argentina is in a financial crunch yet again. After investor enthusiasm about President Javier Milei's reforms made Argentine equities some of the world's best performers in 2024, the benchmark Merval index is tumbling; it could end up as one of 2025's worst performers.

Milei's government is attempting to stem the peso's drop against the dollar with limited FX reserves, raising concern about the form and extent of support promised by US Treasury Secretary Scott Bessent.

Exclusive fund-flow data from our partners at EPFR suggests that foreign investors are not willing to see whether Bessent's measures work (or, indeed, materialize). Measured as a percentage of assets under management, outflows from Argentine equity funds gathered pace from early September.

We can also see a first spate of outflows in March and April -- around the time when Donald Trump's "Liberation Day" rhetoric was spooking emerging markets, but Argentina's situation was viewed as particularly precarious by some investors even then. These outflows were stemmed in April when Argentine reached a reserve-boosting loan deal with the International Monetary Fund.

Our second chart considers the peso, famous for its hyperinflation in recent decades. As the central bank intervened to support the currency, it used over USD 1 billion of its international reserves over the course of a three-day operation.

The immediate cause of the current malaise was the unexpectedly crushing defeat of Milei's LLA party by a Peronist challenger in Buenos Aires local elections. This result has stirred speculation that Milei's wider reform agenda could be derailed; congressional midterm elections are scheduled for the end of October.

Our last two charts consider how voters have fared in Milei's two years in power. Unemployment -- especially in Buenos Aires -- has risen as a result of his tough austerity measures, but the president's fight against inflation has resulted in more purchasing power for workers.

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