Four days before the general elections and on the same day as the visit of its CEOJamie Dimon, to the local affiliate, JP Morgan’s Equity Strategy team warned that the market has already discounted a negative scenario for the ruling party, generating a Upside Asymmetric Risk-Return Opportunity for Argentine Stocksespecially in two key sectors.
In a report distributed to investors, the US bank points out that, following the results of La Libertad Avanza (LLA) in the legislative elections of the Province of Buenos Aires (PBA) in September, Argentine assets have suffered a heavy punishment. Since then, the Argentine peso (ARS) fell 10% and the index MSCI Argentina plummeted 15%.
What are the market expectations before the 2025 elections?
According to JP Morgan, the market is assuming that this Sunday’s results will be similar to those of the PBAwhich would already be reflected in current prices. MSCI Argentina is currently trading at a forward P/E multiple of 7x, just 16% above the level seen when Milei was elected president, and far from the 12x recorded in January or the peak of 18x during Mauricio Macri’s administration.
“The possibility of a better performance of LLA compared to September is not minor, and if confirmed, could prompt a significant revaluation of Argentine assets,” the report maintains.
JP Morgan identifies two aspects that the market will watch closely on Sunday:
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The total percentage of votes that LLA obtains at the national levelas a thermometer of the Government’s political support.
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If LLA and its PRO allies manage to reach a third of the seats in the Chamber of Deputieswhich would allow them to block attempts to overturn presidential vetoes or push for impeachment.
In your base scenariothe bank projects that LLA will get around 35% of the votessurpassing Fuerza Patria, and which will comfortably reach the threshold of one third of the chamber, with more than 86 deputies next to the PRO. The bullish scenario would imply a vote close to 40%, while the bearish scenario would be not reaching the key minority in Deputies.
Two sectors highlighted by JP Morgan: energy and banks
The energy sector is the favorite of the report for its less dependence on the local macroeconomic context. “The oil and gas industry is strategically positioned and will continue to be a priority for any government,” said JP Morgan.
Despite falls of 35-40% in sector stocks —greater than the decline in Brent (17.8%)—, the bank considers that it is a overcorrection and highlights the attractiveness of companies such as Viewwhich quotes 3.2x EV/EBITDA and offers direct exposure to oil growth in Vaca Muerta.
“The sector is better insulated from political and macroeconomic volatility, represents a critical source of foreign exchange and shows solid fundamentals,” summarize the analysts.
The outlook for the financial sector is more complex. Despite its growth potential due to low credit penetration (11% of GDP in private loans), pressure on margins, asset quality and funding costs predict a difficult third trimesterwith the possibility of net losses, as already happened in August.
Monetary conditions have tightened, with a rise in BCRA reserve requirements (from 30% to more than 50%) and an increase in the TAMAR rate from 30% to 60%, which makes funding more expensive and limits the profitability of the system. However, current valuations—1-1.2x P/BV versus 0.7x during the Fernández era and 2-3x at Milei and Macri’s peaks—suggest an attractive risk-return if the political landscape stabilizes.
In this context, Macro Bank (BMA) It is the entity preferred by JP Morgan “due to its greater capitalization, lower risk of default and better liquidity position.” They follow in preference Galicia (GGAL) and, to a lesser extent, SUPV.
In short, JP Morgan improved the qualification Banco Macro SA to “overweight” and raised its target price from US$79 to US$89. In the case of Grupo Financiero Galicia SA, although the recommendation was lowered to “neutral”, its target price was also adjusted upwards, from US$46 to US$74. On the contrary, Grupo Supervielle was downgraded to “underweight”, with a reduction in its target price to $5.
The JP Morgan report projects that this Sunday’s election result could mark a turning point for Argentine assets. Although risks persist, the current asymmetry of valuations suggests that the premium for a moderately positive result would have a strong upside for these stocks.
Source: Ambito
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