Milei’s fall from grace: Argentina’s stock market becomes the world’s worst performer in 2025

Argentina's Merval index has become the world's worst performer in 2025, declining approximately 30% year-to-date, primarily due to President Milei's significant electoral defeat in Buenos Aires. This unexpected setback has heightened investor concerns about potential legislative gridlock hindering his reform agenda, leading to a sharp market downturn, country risk soaring above 1,200 points, and the peso hitting new lows that necessitated central bank intervention. This reversal follows a massive 170% market rally in 2024 driven by initial optimism for Milei's fiscal adjustments, with foreign investors now facing nearly 50% losses in dollar terms for 2025, underscoring significant political and economic uncertainty ahead of critical legislative elections.

Analysis

The Argentine stock market has experienced a dramatic reversal, shifting from the world's top performer in 2024 to the worst in 2025, with the Merval index declining approximately 30% year-to-date. The primary catalyst for this downturn is a severe shift in political sentiment following President Milei's unexpected and resounding electoral defeat in the province of Buenos Aires by a 13-point margin. This event has instilled significant fear among investors that Milei's pro-market reform agenda will be paralyzed by legislative gridlock after the upcoming October 26 national elections. Market indicators reflect this heightened risk: Argentina's country risk has surpassed 1,200 points, the peso has weakened beyond 1,474.50 per dollar, prompting a $53 million central bank intervention, and access to external financing markets remains closed. The initial optimism that drove a 170% Merval rally in 2024 has evaporated, with foreign investors now facing losses of nearly 50% in dollar terms for 2025, erasing all gains made under Milei's tenure. The president's falling approval ratings, now below 40%, and subsequent promises of increased social spending further challenge the fiscal consolidation narrative that initially attracted capital.

Key Decisions for Investors

• Investors with exposure to Argentine assets, including equities like YPF and BBAR, should prepare for sustained volatility and consider hedging against further downside risk ahead of the binary outcome of the October 26 legislative elections.
• Monitor central bank reserve levels and the peso's exchange rate closely, as any acceleration in reserve depletion could signal a deepening currency crisis and force more restrictive capital controls.
• The current political uncertainty and market crash have created a high-risk, high-reward scenario; speculative investors might identify deep value, but any entry should be contingent on a favorable election result that revives the stalled reform agenda and restores market confidence.