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The backdrop for emerging markets has become increasingly supportive in recent months, with several macro and style-related headwinds now easing.
This week’s Market Snapshot
A dollar bazooka for Argentina
The US breaks out the big guns to help its LatAm ally.
For Argentina’s crisis-ridden economy, the cavalry arrived this week in the form of US Treasury Secretary Scott Bessent bearing promises of financial support. But will it be enough to convince investors to keep the faith?
- A heavy local election defeat and a corruption scandal have called into question President Javier Milei’s ability to drive through much-vaunted free-market reforms.
- Argentina’s benchmark Merval Index has fallen more than 30% this year and the value of the peso has hit a record low¹.
- The US is looking at a US$20bn currency swap line with Argentina’s central bank and may buy Argentinian dollar-denominated bonds in the secondary market.
US Treasury Secretary Scott Bessent appeared to throw Argentina’s under-pressure President Javier Milei a lifeline this week with a commitment ‘to do what is needed’ to support Latin America’s third-largest economy.
Bessent’s comment came after weeks of turmoil following a heavy defeat for Milei’s coalition party, La Libertad Avanza, in local elections on 7 September, which, coupled with a corruption scandal involving a senior government advisor, have called into question the libertarian leader’s ability to drive through long-promised free-market reforms.
The local election defeat spooked investors and sparked a sell-off in Argentinian debt and equities. Prior to Bessant’s intervention, the country’s benchmark Merval Index extended losses to 25% for the year, while the value of the peso hit a record low. In response, the BCRA, the country’s central bank, spent more than US$1bn of its scarce foreign reserves propping up the country’s currency.
Figure 1
Figure 2
On Monday, following his message of support, Bessent announced negotiations over a US$20bn currency swap line with Argentina’s central bank, adding that the US government was prepared to buy Argentinian dollar-denominated bonds in the secondary market. The news calmed investors’ fears, with the peso rebounding 6% and yields on Argentinian dollar debt falling back to 3.7% on the day².
For Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes, the key question is how far US support will go and whether other institutions will join with the US to shore up Argentina’s economy.
“Further support, whether direct or via institutions like the IMF, could be pivotal,” he says. “It’s not just about liquidity. It’s about restoring confidence. Stabilising inflation, preserving reserves, and enabling legislative reforms are all critical to attracting foreign investment. Argentina’s economic fundamentals, especially in energy, tech, and agriculture remain strong. But October’s legislative elections are also a key inflection point. A poor outcome could complicate reform efforts, though broad public appetite for change may still carry momentum. With credible US backing, Argentina has a real chance to shift from fragility to resilience.”
De Vito highlights how the wording of Bessent’s message echoed that of then-ECB governor Mario Draghi during the eurozone crisis that the central bank would do “whatever it takes” to prevent the euro from failing. “This time, for Argentina, it seems to have helped calm fears of a full-blown FX crisis,” says De Vito. “The US appears to view Argentina as a strategic partner, an opportunity to champion democratic reform and market liberalisation in South America.”
1 Source: Bloomberg 26 September 2025
2 Source: Bloomberg 25 September 2025
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