What happened

From The Wall Street Journal:

Argentines voted in a primary election on Sunday ... A win for [Peronist candidate] Mr. Fernandez of more than 5 percentage points would raise fears among investors about a return to power of [his running mate ex-president Cristina] Kirchner.

Give the Journal credit -- they called it.

Just a few hours after this story ran in Monday's paper, an updated version on the web displayed the results for all to see: "In a nationwide primary, Mr. Macri received 32% support versus 48% for his opponent, Alberto Fernandez, with more than 99% of the ballots counted." 

That's a win of considerably more than "5 percentage points," and the predicted panic arrived right on schedule: Banco Macro S.A.'s (NYSE:BMA) stock was down 49.4% as of 10:45 AM EDT, Grupo Supervielle S.A. (NYSE:SUPV) was down 53.2%, and Grupo Financiero Galicia (NASDAQ:GGAL) was down 55.3%.

A pin marks Buenos Aires on a map of Argentina

Image source: Getty Images.

So what

Four years after Macri's election as president of Argentina in 2015, Argentina is still mired in a recession and suffering double-digit inflation. Inflation rates in June topped out at a staggering 56%. None of this is working to make Macri more popular.

On the other hand, Macri has made some progress pulling Argentina out of the mess left by the preceding administration. Buoyed by a strong export soybean crop, the economy resumed expanding in May, and inflation is down from the records set in June. Taxes have been cut and investments in infrastructure made. Perhaps most propitious of all, Argentina recently reached a trade agreement with the European Union that the WSJ opines "would open up Argentina's economy, one of the most closed in the world," with presumably beneficial results.

However, Fernandez's 48% support in the primary opens the door to a potential first-round win by the Peronists in the October presidential election, which could hand the opposition party a victory without the usual run-off vote. In such a case, all the gains of Macri and Argentina's reformers over the past four years could be rolled back by Kirchner's swift return to the "Pink House." 

Now what

Today's movement indicates that investors are worried the economy would close back down; inflation would flame back up as the Peronists fired up the currency-printing presses once again; and any profits earned by companies such as Banco Macro, Grupo Supervielle, and Grupo Financiero Galicia would be worth substantially less when converted into harder currencies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.