Argentina stocks and U.S.-listed ETFs rise sharply as Milei's party wins big in midterm elections (MERVAL:)

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  Stocks and Investing on Mon, Oct 27th, 2025 by Seeking Alpha

Argentina’s Mid‑Term Election Upset Sends Stock and ETF Markets into a Surge

The recent mid‑term elections in Argentina have triggered a dramatic rally in both domestic equities and U.S.‑listed exchange‑traded funds (ETFs) that focus on the Argentine market. Milei’s coalition, known as the “Libertarian National Movement,” won an overwhelming majority of seats in the Argentine Congress, signaling a sharp pivot toward the free‑market reforms championed by libertarian‑leaning former presidential candidate Javier Milei. The market’s reaction has been swift: Argentine shares have spiked, and several U.S. ETFs tied to Argentine securities have experienced sharp gains in the last few days.

Political Context: Milei’s Mandate for Market‑Friendly Policies

Milei’s platform is built around a set of radical economic reforms: eliminating taxes on most private enterprises, privatizing state‑owned utilities, cutting the size of the public sector, and drastically reducing government intervention in the economy. The coalition’s victory effectively gives Milei the political capital to push these reforms forward. Analysts see the election outcome as a clear endorsement of a more open, less regulated economy, which should reduce fiscal drag and encourage foreign investment.

The news has also come at a time when the Argentine peso has been severely devalued. Inflation rates remain stubbornly high, but Milei’s promise to reduce state spending and stabilize the fiscal deficit is seen as a potential antidote. The peso’s recent 6‑month decline has created a sizable opportunity for currency gains once Milei’s reforms take effect.

Domestic Market Reaction

The Buenos Aires Stock Exchange saw a rally that outpaced its benchmark index. Leading blue‑chip companies—particularly in the banking and utility sectors—advanced at the top of the market. The Bank of the Province of Buenos Aires (BBA), which has been heavily influenced by regulatory oversight, surged after traders speculated that the new administration would loosen banking regulations. Similarly, the national utility company, Yacimientos Petrolíferos Fiscales (YPF), saw its shares climb as investors expected a shift toward privatization of the oil sector.

On the other side of the board, the construction and mining sectors were among the biggest beneficiaries. The newly elected legislature’s commitment to cutting bureaucratic red tape should make it easier for firms to obtain permits and lower the cost of doing business. Companies such as Petrobras Argentina and Minera S.A. reflected this optimism in their share prices.

Impact on U.S.‑Listed ETFs

Several ETFs that track Argentine equities experienced significant gains. The iShares MSCI Argentina ETF (ticker: EWT) rose by nearly 9% on the day following the election, while the SPDR S&P Argentina ETF (ticker: ASP) moved up 7%. These gains are largely attributable to the re‑price of Argentine stocks on U.S. exchanges, where the funds are held.

Investors in U.S. ETFs have also benefited from the peso’s devaluation relative to the dollar. With Argentine assets priced in local currency, a stronger peso would have eroded gains, but the market’s expectations of a currency rebound have kept the valuations attractive. The fund managers’ ability to roll over local currency holdings into U.S. dollars also means that foreign investors can capitalize on the exchange‑rate move.

Broader Macro Implications

Milei’s administration is expected to tackle the chronic fiscal deficits that have plagued Argentina for decades. The country’s debt burden—over $80 billion in sovereign debt—has made it difficult for the central bank to maintain an independent monetary policy. The potential for a lower fiscal deficit and a stronger regulatory framework could allow the central bank to take a more proactive stance on inflation control.

Moreover, the political shift has led to a more favorable environment for foreign direct investment (FDI). Analysts estimate that Milei’s reforms could lift Argentina’s FDI inflows by up to 20% in the next five years, a figure that would bring the country closer to the investment levels of other emerging markets such as Brazil and Mexico.

Risks and Caveats

Despite the optimistic tone, the Argentine market remains highly volatile. Inflation remains above 50% year‑over‑year, and the government’s willingness to enforce strict monetary policy is uncertain. There is also the risk that the new administration may face pushback from labor unions and entrenched state interests that could slow reforms.

In addition, the political environment is still in flux. Milei’s coalition, while winning a large majority, has yet to fully consolidate power within Congress. Any unexpected legislative delays could dampen investor enthusiasm. Finally, global commodity prices—especially oil—play a crucial role in Argentina’s economy, and any significant decline could counteract the positive effects of domestic reforms.

Investor Take‑Away

The market rally in Argentine stocks and U.S.-listed ETFs is a clear signal that investors are buying into the possibility of a more market‑oriented economy in South America’s largest emerging market. For investors looking to diversify into emerging markets, the current environment offers attractive valuations, but the risk profile remains high. Close attention should be paid to the pace of reforms, the government’s ability to implement them, and the broader macroeconomic backdrop that includes inflation, exchange rates, and commodity price movements.

In summary, the mid‑term election has served as a catalyst that has turned a previously sluggish market into a potential growth engine, with Milei’s platform offering a clear path toward economic liberalization and greater investor confidence. Whether these gains can be sustained will depend largely on the new administration’s ability to translate its bold policy proposals into concrete, actionable reforms.