What happened to Argentina when the stock market crashed, the exchange rate crashed, and the bond crashed?

category:Finance
 What happened to Argentina when the stock market crashed, the exchange rate crashed, and the bond crashed?


Argentina held its presidential primaries on August 11, local time. Previously, almost all the media and polls believed that the current president, Mauricio Macri, could win. But fate seems to play a joke on the 60-year-old president. Argentinas New Continent Weekly reported that nearly 33 million voters voted in the primary election that day, accounting for 75% of the total voters. Voting statistics show that the voting rate of the National Front Fernandez combination is 47.37%, while that of the Alliance for Change Markley combination is 32.23%. At 22:30 that evening, Markley announced that he had lost the primary.

Markeys unexpected failure brought tremendous shock to Argentinas financial market. The Argentine pesos exchange rate against the US dollar plunged by 25%, the main stock index plunged by 38%, and Argentinas listed companies plunged collectively, including EDNs 59.3%, Loma Negras 57.3%, BBVA Banks 55.85%.

The strong avalanche situation in Argentina also affected the global market trend on the evening of August 12: the Dow Jones Index plunged 389.73 points, or 1.48%, on August 12.

Argentina suffered three killings in stock exchange and debt

CNBC said center-left candidate Alberto Fernandez won 47.7 percent of the vote, while Markley and his running mate Miguel Angel Piceto won only 32.1 percent.

Markeys turnout was much lower than expected, and voters were seriously questioning Markeys chances of winning in October.

Argentinas stock and bond exchange market suffered a fierce three killings after opening Monday as investors feared that the return of the left-wing populist government represented by former President Christina would reverse many pro-market and pro-business policies of Markley. Shortly after the Buenos Aires market began trading that day, the Argentine Peso plunged 25% against the dollar to 57 pesos, down sharply from 42.25 pesos against the dollar at Fridays close. According to Reuters, Argentinas euro-denominated bonds fell by nearly 9 cents and bond yields rose by nearly 3%. A fund that tracks Argentine stocks also plunged 22% after the opening of U.S. stocks on Monday, August 12, Beijing time. By 14:30 local time, Argentinas S&PMerval index had plunged 38%, with financial and energy stocks leading the decline. GlobalXMSCI Argentina ETF, which is listed in the United States, closed down 25%. Argentinas U.S. -listed companies fell sharply. By the end of the day, Galician Finance had fallen 56%, GrupoSupervielle 58.75%, Pampa Energia 53.8%, Loma Negra 56%, CentralPuerto 56%, Macro Bank 52%.

Credit default swaps (CDS) data show that Argentina is currently 72% more likely to default in the next five years, significantly higher than 49% on Friday (August 9), a five-year credit default swap that measures bond risk surging by more than 800 basis points in one day. The price of Argentinas 100-year Century Bond, issued in 2017, fell 27% to 54.66 cents on August 13.

According to Wind Financial Terminals, Argentinas interbank lending rate soared to 90% to 120%, with an average of 61% on Friday.

The results of the primary election were seen by many as a key indicator of Argentinas first round of presidential elections on October 27, and as a clear signal that Argentine voters were ready to reject the harsh economic policies of the Markley government. The collapse of Argentinas stock and debt also prompted analysts to warn that panic was widespread in financial markets.

The Argentine Central Bank intervened immediately

The Daily Economic News noted that before the crash, the Argentine Peso had been the worst performing currency in emerging markets this year - down 17% from the beginning of the year to last Friday.

In the past few years, especially since last year, the devaluation of the Argentine Peso has been like a free fall. On May 3, 2018, the Argentine Peso plunged 8.5%. On August 30, the peso plunged again, falling more than 11% against the US dollar in a single day. On April 24, the peso depreciated more than 3% in a single day.

According to the Global Times, the Argentine pesos exchange rate against the US dollar was 8:1 in 2014, 18:1 in early 2018 and 38:1 in May 2018, but now it has fallen to 57:1.

After the collapse of the peso exchange rate, Argentinas central bank had to intervene.

It is reported that the Argentine central bank took action that evening, since September last year, the first time to use 50 million dollars of reserves to intervene in the market. As of 1 p.m. on the 13th, the pesos decline against the dollar narrowed to 17.33%.

At present, Argentinas central bank intervention is likely to be a double-edged sword, because the Argentine central banks gold owner - the International Monetary Fund (IMF).

The IMF increased the size of Argentinas three-year lending program by $7 billion to $57 billion when the peso collapsed in September 2018, but only if the Argentine central bank stopped its comprehensive intervention to support the weak peso.

After the financial crisis in 2008, Argentinas economy suffered a heavy blow, the exchange rate fell, prices soared, and public protests continued. In order to cope with the crisis, the Argentine government had to carry out economic reforms. The previous left-wing government nationalized foreign shares in energy, railways and other fields, which brought its relations with many European and American countries to a freezing point. Radical import and foreign exchange restrictions also caused Argentina to be protested by more than 40 WTO members in a joint statement.

The overnight liberalization of foreign exchange control by the right-wing government (the current Markley government) which came to power in 2015 has led to a large loss of foreign exchange reserves. In order to curb excessive government expenditure, the sharp reduction of public service subsidies such as water, electricity and gas has triggered a strong social rebound. Under the Macquarie administration, Argentinas currency was rapidly depreciating, with unemployment as high as 10 per cent and inflation as high as 55 per cent.

In June 2018, Argentina negotiated with the IMF to seek financial assistance, using US dollar reserves as a safeguard to remove market doubts about its economic prospects. The IMF Executive Board approved a three-year loan agreement of $50 billion to Argentina. As a condition for lending, Argentina needs to accelerate the pace of reducing its fiscal deficit.

The victory of the left-wing Fernandez in the primaries has led to fears that if Fernandez is elected, the Argentine governments budget may expand again, endangering the IMFs economic assistance to Argentina. Kaitou Macro has said that the IMF may ask Argentina to clean up its debt structure before the general election.

Markley and Fernandez were completely shocked by the results, Blanc said. Almost all the polls predict that the competition between the two leading candidates will be more intense, rather than the result of such a disparity, he stressed. The results show that Argentines are not satisfied with the policies of the Markley government.

However, analysts said that for now, Markeys chances of reappointment seemed increasingly slim. Shortly after the primary results were announced, Markley also told his supporters that his campaign had suffered a bad election.