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Primary elections took place in on Sunday. (ddp)

Argentina Argentina: Unexpected victory for opposition

13 August 2019, 7:57 pm CEST, written by UBS Editorial Team

Primary elections took place in Argentina on Sunday. The results revealed unanticipated voter preferences that give a much clearer outlook for the 24 October general elections.

• The opposition ticket representing Alberto Fernandez and in the general election wins. In the City of , a former President Cristina Fernandez de Kirchner (Frente por first-round victory requires over 50% of the vote. Todos) obtained over 47% of the vote; incumbent President The opposition's primary results represent a landslide and Miguel Pichetto () victory completely unforeseen by pollsters, experts, received slightly above 32%; and Roberto Lavagna claimed investors, and ourselves. Argentine assets are experiencing less than 8.5%. severe pressure as a result. Although two-and-a-half • In the important Province of Buenos Aires, months is a still long time in Latin American electoral (Frente por Todos) came in first with over 49% of the vote, contests, Sunday's results point to a highly likely victory for and Maria Eugenia Vidal (Juntos por el Cambio) came in the opposition in October, at both the national and Province second with nearly 33%. of Buenos Aires levels, as well as it obtaining a majority in Congress. • The incumbent party managed to stay ahead in the City of Buenos Aires, with Horacio Rodriguez Larreta obtaining We will now focus on any guidance on the economic plan over 46% of the vote, compared to the 32% received by to be pursued by Fernandez and Kirchner. The guidance the Frente por Todos candidate. they have offered so far is far from constructive, in our view: Fernandez and his team have suggested they would stop Electoral rules in Argentina stipulate that a presidential paying interest on Leliq notes issued by the central bank, candidate who obtains over 45% of the vote, or 40% plus intend to renegotiate the agreement with the IMF, and a 10% difference to the runnerup, in the first round of the have signaled their intention to reintroduce some sort of general election is elected to the office. In the Province of capital controls. Unless voter intentions change drastically Buenos Aires, the candidate who obtains the most votes in October, Macri's last day in office will be 10 December, UBS Investment Insights For UBS marketing purposes

implying a long government transition of four months. The fractious relationship between the incumbent and the opposition will make this a challenging handover.

Regarding the impact of these developments on EM assets more broadly, Argentina makes up nearly 2.3% of JPMorgan's EMBI Global Diversified index of USD- denominated EM sovereign bonds, and just 0.4% of the MSCI EM equities index. Depending on the size of Argentina's sell-off, emerging markets could suffer at the index level, particularly the EMBI Global Div index. We would expect any contagion on other emerging markets stemming from developments in Argentina to be short- lived.

Original blog: Argentina: Unexpected landslide victory for opposition in primaries, 12 August, 2019.

Main contributor: Alejo Czerwonko, Emerging Markets Strategist Americas

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