MERVAL, Argentina’s main index, falls 3% on a positive day for the region’s markets

On an optimistic day for Latin American stocks, Argentina stands out with a 3% drop in the MERVAL index.

The main index’s decline is attributed to uncertainty surrounding the government’s omnibus law presented by Javier Milei.

The weakening dollar also impacts the Argentine index, which closely monitors the “blue chip swap” exchange rate between leading Argentine stocks and their ADRs in the American market.

When measured in dollars, the decline is approximately only 0.5%. Seen in this light, Argentina’s index, the MERVAL, has dropped nearly 5% in the last three trading sessions.

Today, the energy and banking sectors are the biggest losers, both experiencing declines of around 1% and 2% respectively.

Argentina, once a regional economic powerhouse, now faces triple-digit inflation, soaring debt, and economic underperformance. Its market has stagnated amid a barrage of bad news.

The nation also grapples with an unprecedented heatwave and drought, exacerbating the challenges. Agricultural commodities have been declining while Argentina urgently requires foreign currency to service debts and curb rampant inflation.

Amid administrative challenges, the new government’s missteps in geopolitics, notably with main trading partners Brazil and China, have dampened market confidence.

The OECD predicts Argentina’s economy will contract by 2.3% with 250% inflation in 2024. Consumer spending dropped 28% in January, prompting the new government to raise taxes to meet IMF quotas.

Local politics appear increasingly unstable, with the Supreme Court rejecting critical aspects of the President’s reforms. Additional adjustments were necessary for the Omnibus Bill, President Milei’s signature law, to advance through Congress.

However, it’s important to note that until January, the Argentine market thrived as one of the best-performing in recent months.

Stocks and bond prices had incredible performances from November to January under President Milei’s promised reforms, driven by anticipated sweeping changes and apparent popular backing. ETFs like Global X MSCI Argentina (ARGT) increased by 40%, while individual stocks like YPF, GGAL, and CEPU surged by 90%, 110%, and 77% respectively, among others.

It’s premature to make definitive conclusions, but the market appears to be cooling off after the initial hype surrounding Argentina and its new government.