Argentine Bulls May Return, So Choose Your Weapon – equity, bonds, or options
September LatAm Report: The Argentinean Edition
The future is unknowable. That’s why uncertainty in financial markets is the norm. The only way to navigate the sea of unknowable is to become a Risk Manager.
As Risk Managers, you build scenarios for the future. Pay attention—not predictions or forecasts—they give false confidence in a reality where the only certainty is uncertainty.
The credibility of each scenario is based on how well we know the inputs:
Causes
Consequences
Probabilities
A complete knowledge of all is unattainable. In reality, we can achieve only partial comprehension. Of course, how much we know (or do not know) is a spectrum. Therefore, scenarios we create have credibility that is a function of how well we know the causes, consequences, and probabilities.
Considering how credible the scenario is, there are four categories of outcomes:
Potential or preposterous: scenarios that exist in the realm of the unknown unknown that we often, through ignorance, call impossible. We know neither the possible causes nor the magnitude of their consequences nor their probability of occurrence. Yet such events exist.
Possible: scenarios for which we know one of three - causes, consequences, probabilities. They are in the realm of the known unknown. Scenarios falling in that category have some level of credibility.
Plausible: scenarios for which we know two of the three variables—cause, effect, and probability. We have an idea of the possible combinations between the market variables. The degree of credibility is higher than that of the previous category.
Probable: scenarios that are based on our knowledge of the three factors - cause, effect, and probability. These are scenarios where the available information is more than what is missing. The credibility of these scenarios is highest compared to the other three.
Remember, a “probable” scenario doesn’t mean a guaranteed outcome. What probable means is that the odds of happening are slightly higher compared to the rest of the categories.
The four categories are illustrated below:
The Future Cone (TFC) is a powerful mental model for investors. I use it as a tool to build a scenario grid for trades I make.
In today’s LatAm market review, I will discuss Argentina’s capital markets through the lens of the TFC. The Southern Cone was also the central theme in the August report. Since then, two events have unfolded: Movimiento al Socialismo (MAS) lost in Bolivia, one of the region's leftist strongholds; and La Libertad Avanza was defeated in the Buenos Aires elections.
The results in Bolivia represent the broader trends in Latin America. The political pendulum is moving from left to right. Meanwhile, the LLA loss in Buenos Aires is akin to a correction during a strong trend. In other words, the Buenos Aires election actually confirms the trend, instead of invalidating it.
Now, let’s say a few words about Bolivia. Bolivia’s general elections held on August 17, 2025, marked a turning point, ending nearly two decades of dominance by MAS. Incumbent President Luis Arce, a member of MAS, did not seek reelection. The Bolivian left, plagued by internal divisions and economic turmoil, saw its candidate finish a distant sixth, with the party nearly decimated in Congress.
The map below (via Wikipedia) shows the distribution of results by departments.
The centrist Senator Rodrigo Paz Pereira and right-wing former President Jorge Quiroga are advancing to a historic runoff scheduled for October 19—a first under Bolivia’s current constitution. This outcome reflects widespread voter dissatisfaction amid economic crisis, food and fuel shortages, and sharp political polarization. The results signal the end of the MAS rule and pave the way for significant policy and economic changes.
What has happened in Bolivia is an extension of the conservative politics revival in South America. It all began with Javier Milei’s success in Argentina.
That said, let’s say a few words about Argentina and Buenos Aires Province elections. First, the big picture. Buenos Aires is a Tier 1 global city. Tier 1 cities are not representative of the country in which they are located, and vice versa. This fact brings positives and negatives.
From a political perspective, I would say Tier 1 cities, due to their integration in the global economy, are more prone to political hype, i.e., modern liberalism. Over the last few decades, liberalism has evolved into a form of Marxism-Leninism for the anointed, as Thomas Sowell defines the typical electorate. In Argentina, these are the Peronismo and Kirchnerismo acolytes.
Buenos Aires remains the fortress of the Argentine left. The results from the latest election have confirmed that.
The left-leaning Peronist coalition, Fuerza Patria, led by Governor Axel Kicillof, scored an uncompromising victory, securing approximately 47% of the vote and consolidating its power in the province. LLA obtained only 34%, performing well in just two out of eight electoral districts, and marking a significant 13-point defeat. The election exposed LLA’s limited grassroots presence and governance challenges, despite Milei’s ongoing promises to double down on market reforms, austerity, and public sector cuts in response to the defeat.
The Buenos Aires province, which contains 40% of Argentina’s electorate and produces over 30% of its GDP, often sets the national political direction. The Peronist win reinforces the movement’s resilience and complicates Milei’s efforts to expand his legislative support, while financial markets reacted with concern to the results.
Is this the end of Mile’s reign, and the beginning of Argentina's cyclical bear market?
I don’t think so. At least not yet.
The next milestone for LLA is the Legislative Elections in October 2026. In the TFC frame, I would say, LLA's defeat in the legislative elections is possible but not a probable scenario. Basically, the probabilities are still skewed in Milei’s favor. This is good news for Argie capital markets; another leg up is likely to come.
The BA election results spooked market participants and pushed stock and bond prices to attractive levels.
Almost all Argie equities are down YTD, and the BA elections amplified the pressure. Golar LNG (NYSE: GLNG), as a high-order bet on Milei's success, was hammered last week. Mercado Libre (NYSE: MELI) is an exception, but its operations are scattered across the continents, so the company’s performance is not tied only to Argentina.
One of my favorite ratios is the relative index strengths. In that case, ARGT vs SPY.
After an impressive several quarters run, the ratio pulled back below the 12-month moving average. SPY has climbed to new highs, while ARGT took a breather.
To recap, Argie equities and fixed income are in a similar position to where they were after the first round of the 2023 election, when Sergio Massa won. Massa’s first-round victory caused a sell-off. Then followed by a massive bull run because of Milei’s victory in the runoff.
To be objective, the Argie stocks are not as undervalued as they were in 2023, nor are the government and corporate bonds trading at a current yield of more than 20%. The point is that the present situation provides a similar opportunity for high RR bets in equity and fixed income.
Let’s start with fixed-income ideas. I like the setup in the following bonds;
Government of Argentina 4.125% due 2035 (ISIN: US040114HX11)
Government of Argentina 1.0% due 2029 (ISIN: US040114HT09)
YPF SA 6.95% due 2027 (ISIN: USP989MJBL47)
YPF SA 7.0% due 2047 (ISIN: USP989MJBN03)
The listed instruments are highly liquid with a minimum settlement amount of $1,000.
To emphasize, especially the long-duration bonds are great for trading but not for the HTM (Held to Maturity) strategy. Take, for example, the Argentina 4.125% bonds:
Position with entry price 57.5 cents on dollar, 53.0 stop loss, and 70.0 cents take profit is a proper asymmetric trade. Additionally, the current yield of 7.0% serves as compensation for the risk taken and the opportunity cost.
At the end of the day, this is Argentina. Even if LLA wins in October and Milei secures a second term in 2027, the uncertainties are too much even for my taste. Moreover, the risk-reward on Argie bonds (corporate and government) is not as good as it was in 2022. In short, proceed cautiously.
On the equity front, the situation is tempting. Even the fastest horse got beaten, and the banking giants Grupo Galicia (NYSE: GGAL), Banco BBVA Argentina (NYSE: BBAR), and Banco Macro (NYSE: BMA) are interesting again. Real estate conglomerate IRSA Inversiones (NYSE: IRS) is also a good proposition at the current stock price.
Last but not least, for option enthusiasts, Grupo Galicia brings liquid contracts to the table.
January 2027 calls are good enough, even despite the higher IV. If all plays out well for LLA in the next few months, Grupo will most probably reach and then surpass its peak ($73.16/share) from January 2025.
In summary, another leg of the Argie bull market remains a probable scenario. The best thing is that we express our bullish view with bonds, equity, and derivatives.
Never forget one thing: this is Argentina, so never underestimate the Argentine risk. Size accordingly.
PS: For more actionable and asymmetric ideas on LatAm and beyond, consider TheOldEconomy premium plans: Researcher and Strategist.
Thank you for being part of TheOldEconomy. Here’s to your continued growth and success, one wise decision at a time.
Invest wisely,
Mihail Stoyanov
Founder, TheOldEconomy
Everything described on this site, TheOldEconomy.substack.com, has been created for educational purposes only. It does not constitute advice, recommendation, or counsel for investing in securities.
The opinions expressed in such publications are those of the author and are subject to change without notice. You are advised to do your own research and discuss your investments with financial advisers to understand whether any investment suits your needs and goals.
Really insightful one, keep up the good work mate!