(Adds analysts quotes)
By NicolÃ¡s Misculin and Cassandra Garrison
BUENOS AIRES, Aug 12 (Reuters) – Argentine bonds fell in London trading and further volatility loomed on Monday after voters soundly rejected President Mauricio Macri’s austere economic policies in primary elections, casting doubt on his chances of re-election in October.
Opposition candidate Alberto Fernandez – whose running mate is former president Cristina Fernandez de Kirchner – won by a wider-than-expected 15.5 percentage points with 47.65% of votes, with 99% of ballots counted after Sunday’s primary.
Fernandez’s lead far exceeded the margin of 2-8% forecast in recent opinion polls.
Argentina is in recession with inflation at over 55% after three and a half years of Macri’s policies. Investors nonetheless see the Fernandez/Kirchner duo as a riskier prospect than free-markets advocate Macri.
Kirchner imposed strict currency controls that slammed investment during her 2007-2015 administration. She feuded with the country’s key farm sector over export taxes and presided over a multi-year standoff with bondholders that kept Argentina locked out of the international capital markets.
Argentinaâ€™s 2028-maturing, euro-denominated bond was down almost 9 cents in European trading on Monday, Tradeweb data showed.
The peso had plunged 6.1% to 49 per U.S. dollar early Monday on the platform of digital brokerage firm Balanz, which operates the currency online non-stop.
The comprehensive victory by Peronists Fernandez and Kirchner “paves the way for the return to left-wing populism that many investors fear,” consultancy Capital Economics said in a note to clients.
“With a renewed focus on sovereign default risks, bonds, equities and the peso will come under severe pressure in the coming days. That said, falls in the currency might be tempered by intervention in the foreign exchange market,” it said.
The primary result indicated that Fernandez had enough support to clinch the presidency in October’s first round, without having to go to a November run-off election.
A candidate needs at least 45% of the vote, or 40% and a difference of 10 percentage points over the second-place runner, in order to win the presidency outright.
“The primaries’ result is nearly impossible to reverse in October,” said local political analyst Ignacio Labaqui.
“In the end, the bulk of the electorate punished the government for its poor economic performance,” he said.
Argentina’s main political parties had already chosen their presidential nominees, allowing the primary to serve as the first concrete measure of voter sentiment after opinion polls showed a narrow margin between Macri and Fernandez.
Voters were given a stark choice: stay the course of painful austerity measures under Macri or a return to interventionist economics under the Peronists.
“Recognizing that we have had a bad election, we are forced, starting tomorrow, to redouble our efforts so that in October we will get the support that is needed to continue the change,” Macri said. “This is something that nobody expected. Nobody had these numbers. All the pollsters have failed.”
Re-electing Macri would mean seeing through painful cuts in public spending as part of the $57 billion standby agreement he negotiated with the International Monetary Fund last year.
His popularity has been dented by the spending cuts and tax increases made in an effort to bring the primary fiscal deficit to zero under IMF guidelines. Unemployment and poverty have risen.
“I am sure that today we Argentines begin to build a new history,” Fernandez said on Sunday. (Reporting by Nicolas Misculin, Cassandra Garrison and Eliana Raszewski with additional reporting by Hugh Bronstein and Gabriel Burin; Editing by Paul Tait, Mark Heinrich and Chizu Nomiyama)