The romance that investors had with Argentina since Javier Milei’s victory in November 2023 is going through its worst slump. The Merval index, which groups more than 20 major companies in the country, has declined around 30% so far this year, making the local stock market the worst-performing in the world during the first eight and a half months of 2025.
The negative streak began at the start of the year, when many investors chose to cash in their profits after a lucrative 2024, and gained momentum in April, at the height of U.S. President Donald Trump’s trade war. But the biggest trigger for this poor performance came in early September, with Milei’s resounding electoral defeat in the province of Buenos Aires.
Although these elections seemed relatively harmless, the victory of the leftist Peronism — and especially its wide margin of more than 13 points, which no poll had predicted — has been a serious blow to Milei’s party La Libertad Avanza. Investors are now concerned that the president’s reform agenda could be halted, if his party suffers a similar blow in the legislative elections on October 26, where half of the parliamentary seats and a third of the Senate are at stake.
With the likelihood of that gridlock scenario increasing, fear has spilled over into the markets. Argentina’s country risk is above 1,200 points, reaching the highs of October 2024; the dollar has hit new records, surpassing 1,474.50 pesos this Wednesday — the level at which the central bank committed to intervene to defend the Argentine currency using its foreign exchange reserves, which it ultimately did by selling $53 million. What’s more, access to financing markets remains closed, which Barclays considers highly relevant, as they do not trust that Argentina can meet its obligations without issuing new debt. And to top it off, Merval stocks, which plunged nearly 13% the day after the vote, have yet to recover from the crash.
“The market is pricing in a much weaker and bumpier adjustment path. While Milei’s fiscal recovery was one of the fastest and deepest adjustments in history, the stabilization program remains subject to significant risks,” explains Mali Chivakul, emerging markets economist at J. Safra Sarasin.
The analyst believes that supply-side deregulation should improve growth prospects, even without additional structural reforms that require a congressional majority. But Chivakul warns that the concern will continue until the uncertainties over the October elections — where the opposition could gain veto power — are resolved.
Economic stagnation and corruption scandals have pushed Milei’s approval rating below 40% for the first time since he was elected, forcing him to respond with promises of increased spending on pensions, universities, and disability benefits to stop the bleed of votes. “The worst is over,” he reassured on Monday during the presentation of the budget.
The Milei effect fade
Alongside the loss of popular support, part of the aura that elevated Milei in the markets has also evaporated. His appointment was met with a more than 22% rise in the Argentine stock market, the largest since 1991. The rebound was led by energy companies — including the nationalized YPF — and major banks such as BBVA Argentina. The financial sector welcomed Milei’s promised reforms: a major fiscal adjustment, privatization of public companies, and debt repayment. The first 12 months of his term confirmed the market romance: the Merval rose more than 170% in 2024 — 113% measured in dollars — making it the most profitable stock market in the world, far ahead of the main global exchanges, which also experienced a year of prosperity.
Although risks such as high debt and local currency depreciation persisted, the low starting point of Argentine companies — due to the market’s traditional distrust of the country’s assets — suggested their potential for appreciation was enormous if Milei managed to steer the economy successfully. But now, after Milei’s electoral failure in Buenos Aires, that potential is in doubt.
The good news for the Argentine president is that what happened in Buenos Aires — the country’s largest and most populous province, and a Peronist stronghold — does not necessarily have to repeat nationwide.
“Given the government’s economic achievements to date, including disinflation and improved public finances, as well as its still-acceptable approval ratings, there is still time to regain some momentum before October,” notes Thierry Larose, portfolio manager at Vontobel. “Even a setback in the midterm elections would be manageable, provided the government takes decisive measures to regain the support of centrist lawmakers.”
A Milei victory in the legislative elections would restore confidence among investors and presumably reverse the peso’s weakness, which has led the National Securities Commission (CNV) to restrict the purchase of dollars financed in pesos by brokerage firms. It would also be a relief for listed companies. The Argentine stock market’s losses are even greater — almost 50% in 2025 when measured in dollars — leaving foreign investors in the red for the entire period under Milei’s leadership. For a rebound, Barclays sees the exchange rate as key: they believe a dollar 20–30% weaker would stimulate economic activity and allow the central bank to rebuild reserves, something they see as “within reach.”
Meanwhile, six weeks of volatility remain before the elections, during which time the Argentine stock market will try to avoid being at the bottom of the global rankings. If things improve, the spotlight could shift to the markets in Beirut or Copenhagen, the latter heavily penalized this year by the poor performance of pharmaceutical company Novo Nordisk (maker of Ozempic), which has significant weight in the OMX Copenhagen 20, the main index of the Nordic country.
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