Moody's Raises Argentina Debt Rating After Presidential Elections

The candidate representing the currently ruling party won the election, as expected. However, the margin of his victory was much lower than originally anticipated. This led Moody's Investors Service to upgrade the countrys debt rating from negative to stable.

It was a close call in Argentinas elections on October 25. Daniel Scioli, the candidate representing the current ruling party, received the most votes (36.86 percent), as expected. However, the big surprise was the second-runner up, Mauricio Macri, who received 34.33 percent of the ballots. This means a second round, or "ballotage," will be held on November 22.

The news led Moodys to change the outlook on Argentina's Caa1 issuer rating to stable from negative.

The firm also modified the outlook on Argentina's (P)Caa2 foreign legislation and restructured local legislation foreign currency obligations to stable from negative.

Why Moody's Cares

According to a press release, The outlook change is based on Moody's view that shifts in the political climate are reducing the risk of investors suffering greater than expected losses once a new government assumes power on 10 December 2015.

The firm explained that, although it is still unclear what specific policies each candidate will pursue if elected, electoral results have further implications. In particular, Moody's stated, "The 25 October electoral results suggest greater than previously expected support for policy change of some sort, and the likelihood of a break from the past is rising regardless of who ultimately wins the presidency.

What It Means

This reduces the likeliness of downside scenarios (previously reflected in the negative outlook) actually materializing, and it increases the probability of the upcoming administration seeking to address the countrys mounting credit constraints, including a fall in international reserves, a lack of access to international capital markets, high inflation and a rising fiscal deficit, the press release expounded.

A more consistent policy framework would lessen the possibility of Argentina running into difficulties meeting its debt obligations in 2016 and 2017. A negotiation to resolve the legal proceedings in the US would reduce the risk of further legal rulings expanding the portion of Argentina's debt whose debt payments are not allowed to reach bondholders, it concluded.

Market Reactions

Since the election results were out, the Global X Funds (NYSE:ARGT) Argentina ETF rose about 8.78 percent.

Shares of several U.S.-listed Argentine companies have also experienced upswings since. For example, Banco Macro SA (ADR) (NYSE:BMA) gained almost 30 percent; BBVA Banco Frances S.A. (ADR) (NYSE:BFR), more than 19 percent; YPF SA (ADR) (NYSE:YPF), over 20 percent; Telecom Argentina SA (ADR) (NYSE:TEO), almost 20 percent as well.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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