The result of the primaries shook the Argentine stock exchange

On the night of Tuesday to Wednesday, the session of the Argentine stock exchange ended with an impressive increase, which reached 10,22 percent. Great message? None of these things, the day before the Merval index dropped by 38 percent. This is the highest one-day stock price reduction in history.

Argentina is considered the so-called emerging market. This has its advantages, because investors can count on above-average profits on the local stock exchange. Things are more dynamic in younger markets and - as it turned out - declines can also be surprisingly high. We observe large movements over the last two afternoons (trade in Argentina starts at 16 p.m. Polish time). What is the reason for this? Policy.

From heaven to hell

The optimism on the Merval index has been impressive in recent weeks. Stock prices rose, peaked, exceeding 44000 points and everyone was counting days and even hours to new records. So what happened? We have found the results of the primaries.

The still-in-office president of Argentina, Mauricio Macri, lost to Alberto Fernandez from the Civil Unity Front party. The defeat in the primary elections was high (47% to 32,6%) and the fact that the real elections will not be held until October has not changed the negative reception of this information. Why? Alberto Fernandez is a populist, and if he starts to deliver on his promises as a politician in power, Argentina may not recover from recession for a long time. Investors began to panically sell out stocks, bonds and the Argentinean currency - the peso.

USD / ARS chart, D1 interval

As a result, the stock market collapsed by 38 percent. in just one session. In one day it consumed growth from the whole year.

The promises were enough to "buy" votes

What did investors get so scared of? Alberto Ferndandez promises free medicines for retirees, work for every Argentinean and more investment. It's all in Argentina, which is not coping with the recession. In Argentina, where there is also galloping inflation, already reaching more than 50 percent. So many Argentineans live hard when unemployment is high and money depreciates practically overnight. The current president introduces free market reforms in agreement with The International Monetary Fund (IMF), but his countrymen apparently recognized that the changes were taking place too slowly.

Record of declines in one day

After the announcement of the primary election results, investors reacted very quickly. The sell-off hit dollar-denominated bonds, which fell by 25 percent. The Argentine peso lost the same amount. The worst, however, was on the stock exchange. Merval index dropped by 38 percent. is the largest sell-off of stock prices in history, much greater than, for example, during the financial crisis in the US, when the infamous record reached 23 percent.

S&P Merval index, D1 interval

On the night of Tuesday to Wednesday we had a correction of declines amounting to 10,22%, but even those who do not believe in technical analysis can see that after such moves the upward trend, which we have observed practically since 2013, is now very seriously under threat. Especially that institutional investors, especially from abroad, may want to withdraw from the market before the elections. Even if stock prices continue to rise in the coming days, it will be lined with fear that the bigheads want to get rid of large amounts of assets, but they will do it skillfully, shaping prices so as to be out of the market at a critical moment in October and at the same time not lose much. And when the real elections in October are really won by a populist politician, and the "fuel" in the form of institutional dollars is no longer available on the market, we can even expect an improvement in the record of declines.