Argentine markets ended the week on a high after capital controls helped arrest a sharp plunge in the peso currency and local bond prices, but investors said the outlook remained shaky amid swirling political and financial uncertainty.
The peso edged higher and finished the week with a 6.6% gain. It had lost around a quarter of its value in August after a surprise landslide win by populist-leaning presidential challenger Alberto Fernandez in the Aug. 11 primary election.
The country's over-the-counter (OTC) bonds rose an average 2.9%, up 10.7% for the week. But debt prices remained deeply discounted, having tumbled 39% in August when the shock primary result signaled that business-friendly incumbent Mauricio Macri would not win a second term in the Oct. 27 general election.
Investors and analysts said markets were bracing themselves for more wild swings in Argentine assets as Macri, hobbled by his primary election defeat, tries to keep the country out of default.
I think it's very unlikely that we've seen the end of the volatility, said Alejo Czerwonko, emerging markets strategist at UBS Global Wealth Management.
He said the government and opposition needed to work together with creditors to restore calm given Macri's weakened state.
The individual with the ability to implement policy doesn't have the credibility to implement it because most folks out there believe he won't be in power in three months time.
Macri, a free-market champion who came to power in 2015, is expected to lose the general election to Fernandez, whose running mate, populist ex-leader Cristina Fernandez de Kirchner, is frowned upon by global investors and big business.
The perception that President Macri will soon be replaced is now a key obstacle to any lasting deal between Argentina and its creditors, Capital Economics said in a note on Friday. This period of uncertainty could last until Dec. 10, when the next president will take office.