Argentine markets wobble as investors digest election race twist

By Walter Bianchi and Hernan Nessi

BUENOS AIRES, May 20 (Reuters) - Argentine markets wobbled on Monday as investors grappled to work out the likely impact of an unexpected twist in the country's presidential election race after the main populist challenger opted instead to launch a vice-presidential bid.

The country's peso currency ARS=RASL was down 0.68% by early afternoon at 45.35 per U.S. dollar with the local S&P Merval equities index .MERVflat. Sovereign bonds on the local OTC market edged down slightly too.

Cristina Fernandez de Kirchner – a former president who has an ardent support base but is unloved by global investors – surprised locals and international observers alike on Saturday by saying she would run for vice president alongside former cabinet chief Alberto Fernandez, a veteran political operator who has both backed and criticized her in the past.

Economists said the shock move could add to market uncertainty in the short-term but it should overall help temper volatility ahead of national elections in October.

The former president would likely still wield much power given the lower profile of her running mate, but being forced to put a more moderate ally above her on the ticket should create a buffer for any more contentious policies.

Cristina Fernandez is considered by investors to be a riskier prospect because of her past populist policies. She introduced currency controls and tax increases on farm exports while in office between 2007 and 2015.

"Taking a CFK (Cristina Fernandez) presidency off the table is likely to be welcomed by investors," Capital Economists said in a note on Monday, adding it "reduced the odds of a disorderly post-election default," a risk that had spooked investors.

It could strengthen the challenge against center-right incumbent Mauricio Macri if the Fernandez-Fernandez pair can win over the more moderate wing of the broad Peronist opposition, the consultancy added. The pair are not related.

Government officials hit back at the move, saying Cristina Fernandez would still be the major political force of the pair and the decision revealed her concerns about the polls.

"It could be the sign of weakness," Andrés Ibarra, deputy chief of staff, told a press briefing on Monday.

Many investors, however, remained undecided how the development would play for the election - and markets.

Goldman Sachs said that the "unexpected and somewhat dramatic turn of events" was tough to read, though the new candidate was seen as "more moderate and pragmatic, and a less divisive figure" than his running mate.

"Overall, it is unclear how this development will change the electoral dynamics."

(Reporting by Walter Bianchi and Hernan Nessi; Additional reporting by Maximilian Heath; Writing by Adam Jourdan Editing by Phil Berlowitz)

((adam.jourdan@thomsonreuters.com; +54 1155446882; Reuters Messaging: adam.jourdan.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.