Updates with post on Argentine stocks
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ARGENTINE STOCKS JOIN THE PARTY AS MILEI'S LIBERTARIANS WIN, BUT FX RISKS LINGER
Wall Street brokerages are warming up to Argentine equities after President Javier Milei's party scored a decisive victory in the midterm elections, but they caution that the path ahead may be more challenging for the peso.
Hopes of economic reforms and sustained support from Washington helped the country's benchmark stock index .MERV post its biggest intraday gain in nearly two years on Monday.
Strategists at Citigroup believe equities are better positioned than the peso ARS=RASL and local bonds, riding on hopes that Milei would be able to garner simple majorities to get approvals on tax and labor reforms.
"We use our election playbook and buy Argentine equities, as we expect the relief rally to have legs, especially in a bullish global equity context," Citi said in a note dated October 27.
The win is expected to give Milei the power to exercise sweeping economic reforms including deep spending cuts and deregulation measures to stabilize the economy and help curb inflation.
It also solidifies investor bets that Argentina will receive support from U.S. President Donald Trump in a period riddled with tariff uncertainty.
Wells Fargo said the optimism around the reform agenda could help boost the equity rally, which can benefit several sectors and industries. But echoing Citi, it also said it expects the peso to remain "challenging" in the post-election scenario.
"There's still some capital controls in place that have not been lifted yet and once those capital controls get lifted, the currency is more likely to depreciate than strengthen further," said Brendan McKenna, international economist and FX strategist at Wells Fargo.
Traders also expect some weakness ahead for the peso, with one-month forwards ARSNDFOR=FMD pricing the currency at around 1,501.2 per dollar versus about 1,430 currently in the spot market, according to data from Fenics.
(Kanchana Chakravarty, Purvi Agarwal)
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