By Marc Jones, Jorge Otaola and Walter Bianchi
LONDON/BUENOS AIRES (Reuters) -Argentina's black market peso fell 12% on Tuesday to 1,045 per dollar, in the first trading day after libertarian Javier Milei won the country's presidential election, while stocks and bonds jumped on hopes of a more market-friendly economic policy.
Argentina's local markets reopened after a Monday holiday, with investors focusing on Milei's call to slash spending after he won the weekend's presidential election.
The local S&P Merval stock index rose 23%, led by a near 39% surge in shares of state energy firm YPF, catching up with a sharp rise in its U.S.-listed stock on Monday. Milei has hinted he could privatize the company.
Milei's dollar plans, however, which may include a sharp devaluation or even a parallel use of the peso and U.S. dollar, put pressure on the embattled local currency. The official exchange rate is near 356 per dollar, held by tight capital controls. A move to the 1,045 black market rate would imply a devaluation of close to 66%.
Milei has promised to deliver economic shock therapy to the long-troubled economy, with the peso's overvaluation seen at the heart of the country's economic strife.
"Argentina is facing significant policy change, which reinforces its track record of deep swings in policy alongside changes in government," S&P Global Ratings analysts said in a note on Tuesday.
Milei had also heavily criticised China and Brazil, two of Argentina's main trading partners, in the run-up to the elections.
Morgan Stanley analysts on Monday said they expected the peso to drop 80% over the next six weeks. Milei, in the run-up to the election, said he wanted to ditch the currency altogether in favor of the dollar, though he has walked that back.
"The big question is obviously what happens to the currency now given Milei's comments before the elections," said Viktor Szabo, an emerging markets portfolio manager at Abrdn in London.
"The black market is far away from the official rates so some adjustment needs to happen. The issue is how quickly that happens."
Milei, who will take office on Dec. 10, did not refer to "dollarization" in his first speech, raising questions about how quickly he might pursue scrapping the peso.
He has pledged wholesale economic change for the battered economy, with inflation at 143% and set to spiral as the peso devalues.
International bonds rose on Tuesday for a second straight day, marking gains of as much as 1.7 cents on the 2029 note. All six restructured dollar bonds traded above 30 cents and up to 35 cents on the dollar.
On equities, the Global X MSCI Argentina ETF dipped 0.4% after jumping over 11% on Monday. The 22.8% gain in the local Merval was the largest daily percentage increase on record, according to LSEG data.
U.S.-listed shares of Argentine banks held onto most of their Monday gains.