Argentine stocks are missing out on a surge in Latin American equities this year as past market euphoria over President Javier Milei\u2019s election victories fizzles out on concern over weak corporate earnings.<\/p>\n
After shares soared following Milei\u2019s midterm election success in October, the benchmark Merval index flattened out and then dipped eight percent this year. By contrast, the MSCI Latin America index has rallied more than 20 percent over the same period \u2013 its best start to a year since 1994.<\/p>\n
Investors have lauded Milei for slashing fiscal spending and slowing Argentina\u2019s rampant inflation, but those successes are yet to translate into a durable surge in profits. While the economy has rebounded from its 2024 recession, growth hasn\u2019t gathered enough momentum to fuel a robust earnings cycle \u2013 a challenge for equities already trading at rich multiples, analysts say.<\/p>\n
\u201cStocks need clear evidence of a second phase \u2013 sustained economic growth, earnings recovery and greater regulatory predictability,\u201d said Carolina Volman, head of equity and corporate research at brokerage One618. \u201cEquities are still waiting for a growth cycle to emerge that can support a more durable expansion in multiples.\u201d<\/p>\n
Even billionaire Stanley Druckenmiller \u2013 who praised Milei on CNBC early in his term \u2013 has exited his Duquesne Family Office\u2019s position in a leading Argentina exchange traded fund after it hit a record high, reallocating capital to Brazil instead.<\/p>\n
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Mixed results<\/strong><\/p>\n Corporate earnings were hit by financial volatility in Argentina last year, compounded by lower commodity prices. Turbulence ahead of the October elections dragged publicly traded banks to their weakest results since the pandemic, with heavyweight lenders such as Grupo Financiero Galicia and Macro posting losses in the third quarter of the year. At the same time, the nation\u2019s loan delinquency rate climbed to the highest in at least 15 years amid a sharp pullback in lending.<\/p>\n Even energy companies \u2013 the chief beneficiaries of Milei\u2019s new export-focused growth model \u2013 reported mixed results. State-controlled YPF posted a small loss during the third quarter as global oil prices declined, while Pampa Energ\u00eda reported a roughly 50 percent drop in profits in the first nine months of 2025.<\/p>\n Shares of Argentine-founded MercadoLibre Inc had their biggest intraday drop since 2024 on Wednesday after fourth-quarter net income missed analysts\u2019 estimates.\u00a0<\/p>\n \u201cThe market rallied very aggressively after the midterms and valuations became a little too punchy toward the end of last year,\u201d said Ola El-Shawarby, an emerging-markets portfolio manager at VanEck.\u00a0<\/p>\n Companies in the Merval index trade at a forward price-to-earnings ratio of 19.8, higher than Brazil\u2019s Ibovespa at 13.4, Chile\u2019s IPSA at 15.6 and Mexico\u2019s BMV at 15.9, according to data compiled by Bloomberg.\u00a0<\/p>\n Argentine companies are no longer \u201cparticularly cheap,\u201d said Ezequiel Fern\u00e1ndez, head of corporate research at Balanz. \u201cValidating these valuations requires confidence that earnings will grow strongly this year.\u201d<\/p>\n That has left attention focused on fourth quarter earnings \u2013 which started to come out this week \u2013 and the outlook for economic growth. On the latter of those two, things aren\u2019t looking good.<\/p>\n The economy is likely to expand two percent in 2026, down from a previous estimate of 3.2 percent, as Argentina enters the year with \u201cslower momentum\u201d according to Bloomberg Economics. That pessimism remained even after a rebound in growth in December.<\/p>\n To counteract sluggish growth, the government is proposing tax incentives aimed at attracting foreign investment and legislation designed to encourage Argentines to bring undeclared savings into the formal economy. It\u2019s also close to securing approval in Congress for Milei\u2019s signature labour reform bill that would ease the notoriously restrictive rules around hiring and firing.<\/p>\n Foreign flows<\/strong><\/p>\n But there are also specifically market factors that are weighing on Argentine stocks.<\/p>\n Emerging markets have attracted more than US$50 billion in inflows year to date, the strongest such period in years, according to VanEck\u2019s El-Shawarby. Much of that capital has flowed into exchange-traded funds that mirror benchmark weightings, benefiting larger and more liquid markets such as Brazil and Mexico.<\/p>\n Argentina\u2019s equity market remains small relative to regional peers and relatively illiquid, limiting its ability to absorb large passive allocations. Its exclusion from major benchmarks compounds that constraint.\u00a0<\/p>\n A potential catalyst would be reclassification by MSCI, which would likely require a long-term removal of capital controls and greater access for foreign investors.\u00a0<\/p>\n Net inflows into MSCI Argentina ETF reached about US$630 million in 2024, the largest annual haul in more than a decade, as Milei\u2019s stabilisation drive fueled a front-loaded rally. But the momentum proved difficult to sustain. Roughly US$200 million flowed out in 2025, and outflows did not immediately reverse even after Milei\u2019s midterm win sparked gains.<\/p>\n The removal of capital controls \u2013 a key step toward potential re-entry into major emerging-market indexes \u2013 remains some distance away, according to analysts.\u00a0<\/p>\n \u201cWe remain positive on local equities,\u201d Fern\u00e1ndez said, \u201cbut it may require a bit more patience than we had previously expected.\u201d<\/p>\n by David Feliba, Bloomberg<\/p>\n \t\t\t\t\t\t\t\t<\/p>\n