The Argentine stock market and peso fell sharply on Monday.

The Buenos Aires Stock Exchange, the S&P Merval, fell 13.25% to 1,732,923.77 points, while the Argentine peso depreciated 4.25% to 1,422.96 units per dollar this Monday, in response to a surprise defeat by the Libertarian government in the legislative elections in the province of Buenos Aires, prior to the national midterm elections.

This is the largest loss for the stock market since July 15, 2024, when it reported a 12.28 percent drop.

This situation has fueled fears about President Javier Milei's ability to implement his economic reform agenda, when a segment of the population is left without basic needs.

Sunday's legislative elections in the province of Buenos Aires, governed by Peronist Axel Kicillof and representing nearly 40% of the electoral roll, were seen as a test of fire ahead of the October elections.

Among the main falls in the Merval were Grupo Supervielle (-20.32%), Banco Macro (-20.15%), BBVA Argentina (-19.86%) and Grupo Financiero Galicia (-19.42%).

Analysts at the American bank Morgan Stanley warned that the magnitude of the ruling party's defeat "increases the likelihood of a negative scenario, where investors question the continuity of the reforms promoted by President Milei and Argentina's capacity for external financing."

For its part, JP Morgan emphasized that "the magnitude of the defeat far exceeded expectations," noting that the Argentine peso remains vulnerable to further depreciation.

"The market suffered a fairly severe blow, in bonds, stocks, and the dollar. It appears the government was out of the spot market, but likely sold futures. The dollar reached 2% of the upper range but then eased toward the close. Similarly, bonds fell as much as 10%, but by midday, buyers began to appear, closing between 6% and 9% below Friday's level," summarized Puente's research team, as quoted by Infobae.

On the Mexican Stock Exchange, shares of Vista Oil & Gas, an oil company operating in Argentina, fell 8.33% to 656.5 pesos, making it the issuer with the worst intraday decline.

ADRs also fall

In New York, all ADRs of Argentine companies listed on Wall Street fell. BBVA Argentina suffered the largest decline (-24.41%), followed by Grupo Supervielle (-23.9%), and Grupo Financiero Galicia (-23.5%).

Meanwhile, the country risk index compiled by JP Morgan exceeded 1,100 basis points on Monday.

According to analysts, one of the factors behind the depreciation of the Argentine peso, which with Monday's fall has already lost 38.02% for the year, is investor doubts about the Milei administration's monetary and exchange rate policy, the Treasury's ability to refinance large debt maturities, and the slowdown in economic activity, which appears to be cooling.

Public debt, meanwhile, fell by almost 4 percent. (With information from agencies)