A question of margins: PASOs to offer reality check

The primaries on Sunday will offer investors a stark reality check. While the election only defines which candidates will represent each coalition, they also serve as a giant opinion poll ahead of October’s presidential vote. Should President Mauricio Macri do well, asset prices could boom. Should he do badly and rival Alberto Fernándeztak esas eemingly unassailable lead, markets could plummet. It’s all a question of margins.

“The widely accepted view is that markets will tolerate a five-percent disadvantage for President Macri” on expectations that renewed growth will help him revert the deficit,

said Siobhan Morden, head of fixed income strategy for Latin America at Amherst Pierpont Securities.

Here are some of the scenarios:

- Balancing act: four to six points

Should Fernández win by a four to six-percentage-point margin, the Central Bank will continue its current balancing act – defending the peso with high real interest rates, while trying not to stifle the incipient economic recovery.

- Rally: less than four points

A narrow difference in favour of Fernández could trigger a rally on speculation that renewed economic growth will enable Macri to revert the gap.

- Slump: more than six points

“A shortfall of more than six to seven percentagepointsrelativetoMr.Fernandezcould prove an insurmountable obstacle, especially in a highly divisive and polarised political environment,” Goldman Sachs analysts led by Alberto Ramos said in a recent report. “The likely negative market reaction in that scenario would certainly complicate the president’s task.”