Analysts and investors welcomed the prospect of radical change in Argentina after firebrand libertarian Javier Milei won Sunday’s presidential vote, while warning about the deep challenges facing the man who will take over an economy with triple-digit inflation and stalled growth.

The analysts said they are waiting for details on how the outsider will make good on his promise to radically remake South America’s second-largest economy, with new cabinet appointments being key to determining whether Monday’s steep rally in assets has legs.

Sovereign bonds soared today, along with US-listed shares in Argentine companies and an exchange traded fund that invest in the South American nation after Milei beat Economy Minister Sergio Massa by a larger-than-expected margin. Local markets were closed for a national holiday. Morgan Stanley strategist Simon Waever sees room for bonds to trade up to 4 cents higher, but flags that traders will need proof that imbalances will be fixed without major bumps.

Read more: Argentina’s Dollar Bonds, Stocks Rally After Milei’s Victory

The dollarization of the Argentine economy, a key promise of Milei’s campaign, could lead to abrupt price moves and a pickup in inflation depending on how it’s carried out. Another challenge is marshalling Congressional support to move forward with unpopular measures.

Morgan Stanley:

• Predicts an adjustment of at least 80% in the official exchange rate in December, which should unlock pent-up inflows and encourage wheat exporters to quickly ship produce abroad
• Milei is proposing to reduce state interventionism, but challenges include “rampant inflation, an overvalued currency, capital and import restrictions and lack of market access”
• Bond investors need “to be convinced along the way that the imbalances can actually be corrected without incident”
• Prefers the bonds due in 2030

Goldman Sachs:

• Investors will now shift their focus to Milei’s economic policy announcements — with the official exchange rate being a critical variable to monitor
• Cabinet appointments, especially the Economy Minister and positions in the central bank, will also be key

Seaport Global

• “Milei won with 10pp difference over Massa. In his speech he espoused a shock therapy for Argentina. Does this mean that dollarization will be implemented right away? If so, this would mean a meaningful depreciation with immediate inflationary consequences.”

Edwin Gutierrez, a money manager at Abrdn in London

• “The key here will be who he brings into his economic team, with the return of Federico Sturzenegger and Luis Caputo”
• Dollar bonds are set to gain due to Milei’s margin of victory, but “that phenomenon should be rather ephemeral, as that really doesn’t give much of a read in terms of govern-ability”

Claudia Calich, head of emerging-market debt at M&G Investments, who has a small overweight on Argentine bonds

• “Milei rightly emphasized that there’s no room for gradualism. We need to change course of the country very forcefully and in the right direction, which I think everybody, including markets will agree.”
• Calich expects a new economy minister to be named in the next few days, who will most likely start to negotiate with the IMF
• “Dollarization will be very difficult to do in the near term and even in the long term. One can argue if that’s indeed the best for an exchange regime for Argentina”
• Huge fiscal discipline is required to credibly maintain a dollarization policy

Graham Stock, senior EM sovereign strategist at RBC BlueBay Asset Management:

• “Milei will need a hefty dose of good fortune to manage through an adjustment that will be perceived by Argentines as short-term pain for an uncertain long-term pay-off”
• Victory speech “keeps alive the hope that his government will contain experienced technocrats from the opposition, and that he will be able to build a working majority in Congress to advance his legislative program. That legislative program needs to prioritize fiscal adjustment.”

Stuart Sclater-Booth portfolio manager for emerging market febt at Stone Harbor Investment Partners

• “At the margin its a positive to see a big defeat of Kirchnerism, but the real issue is how does Argentina get out of its hole? We are seeing some orthodox names being paraded around for cabinet posts but it’s this very same “dream team” that dug the hole in the first place. The first rule of holes is to stop digging”

Walter Stoeppelwerth, Montevideo-based senior strategist at Montevideo-based brokerage Gletir:

• Milei “has a popular mandate with almost 11.5 percentage points margin of victory which gives him a governability quotient that extends beyond the low legislative representation starting point.”
• “Milei must assert his commitment to fiscal coherence to appeal to the market, and must present a coalition government to firewall his new administration from Peronism and organized resistance to change.”

Leandro Galli, EMD portfolio manager at J.P. Morgan Asset Management:

• “Milei’s appointment opens the door for a potentially more draconian fiscal consolidation plan and reforms to address macroeconomic imbalances accumulated over the years.”

Jared Lou, portfolio manager for emerging market debt at William Blair.

• Milei’s win is “net positive for bond prices as we believe he will pursue more market friendly policies and will likely have a better relationship with the IMF than Sergio Massa would have.”
• Concerned about “policy execution in what will be a very challenging macro-economic environment. We expect more of a trial and error approach will have to occur while the Milei administration attempts to correct large macro-economic imbalances”

Trevor Yates, an investment analyst at Global X in New York

• Milei’s victory proves that “he can maintain support from his core voters while coming to the middle. As a result, we see declining execution risks surrounding his ability to successfully implement orthodox fiscal and economic policies while maintaining public support”
• Fears around his more radical proposals, such as dollarization and elimination of the central bank, are likely to remain in focus. But in the short-term the gridlock in congress should greatly reduce his ability to implement these changes.

--With assistance from Aline Oyamada, Maria Elena Vizcaino and Carolina Wilson.

(Adds comment from William Blair and Global X. An earlier version of this story was corrected to change the spelling of Milei in the third paragraph.)

Author: Giovanna Bellotti Azevedo, Kevin Simauchi and Vinícius Andrade