Provisional results from Argentina’s primary elections (PASO) held yesterday indicate that incumbent President Mauricio Macri suffered a huge loss, with opposition presidential candidate Alberto Fernandez gaining 47.3% of the vote to Macri’s 32.5%, with 83% of the vote counted, according to reports. Turnout was a fairly high 75%.
The margin of victory would be enough for Fernandez and his vice-president pick Cristina Fernandez de Kirchner (CFK) to achieve an outright first-round victory in the election due on 27 October, if replicated again. This requires either 45% or more, or more than 40% plus a 10pp lead over the second place candidate. Fernandez may have been close to the 45% threshold in some opinion polls ahead of the vote, but few predicted such a large margin.
The prospect of a first round win, and the 15pt margin, is unexpected and markets will react badly when they open. Markets had anticipated that Macri would likely lose in the PASO, but hopefully trail by a margin of less than 4-5pts, which he could make up between now and October, on the basis of a higher turnout in the election itself (the PASO generally has a lower turnout), conversion of undecideds voters and an improving economy. A 15pt gap, however, may be insurmountable and Macri will hope that he can at least force a second round when his chances might be better. Macri’s political strategists might hope the PASO reflected a protest vote and that the real election may be different, especially when voters see the market reaction to the thought of a Fernandez victory. Macri might also hope that he can steal votes from other candidates and Fernandez might lose some to narrow the gap. But in short, it looks like he has paid the price for the poor state of the economy.
Three other candidates reached the 1.5% threshold to qualify to stand in the election. Of the more market-friendly candidates, moderate Peronist Roberto Lavagna came third with 8.4% of the vote and Jose Luis Espert came sixth with 2.2%. Nicolas del Cano of the left wing workers party came fourth with 2.9% and Juan Centurion got 2.6%. A risk for Macri might even be that voters dessert him in the election in October, and back Lavagna instead as a more viable and electable third way.
Also significantly, in the province of Buenos Aires, governor Maria Vidal – one of Argentina’s most popular politicians and standing for Macri – suffered a major loss to Fernandez’s candidate, former economy minister Axel Kicillof. Kiciloff gained 49.2% of the vote to Vidal’s 32.7% with 60% of the vote counted.
The challenge for Fernandez now will be to convince markets (and the IMF) that if he wins, he will maintain sound policies.
We downgrade our view on the bonds to Sell from Hold.