Argentina cannot seem to catch a break. With record inflation and a stagnant economy, its financial assets took a drubbing this week, prompting foreign investors to rush for the door.

One of the primary factors fuelling the sudden turn in sentiment has been political, as President Mauricio Macri’s government contends with the increasingly real possibility that former president Cristina Fernández de Kirchner may be poised for a political comeback.

Here is a look at this week’s market meltdown and what comes next for Argentina.

What’s happening?

Argentine assets were hit three days running this week, although prices began to recover on Thursday afternoon. A sell-off in emerging markets around the world, triggered by the strengthening of the US dollar, was magnified in Argentina by growing fears over the uncertainty of the outcome of presidential elections in October.

The spread between interest rates on Argentine bonds and US Treasuries rose by more than a percentage point, reaching all-time highs since the market-friendly Mauricio Macri became president in 2015. Meanwhile, the peso fell, reviving memories of last year’s currency crisis, which prompted the International Monetary Fund to step in with a record-breaking $56.3bn bailout.

Why now?

Finally, investors seem to have woken up to the very real possibility that Ms Fernández could return to power. Ignacio Labaqui, an analyst at Medley Global Advisors, said that markets were underestimating both the chances that the fiery populist could be a candidate — indeed, she has yet to confirm that she will run in the elections — and that she could win.

Investors were jolted out of their torpor with the publication of a survey this week by the local pollster Isonomia, in which 45 per cent of respondents said they would vote for Ms Fernández in a second round run-off vote against Mr Macri, whom only 36 per cent would vote for. Nearly 20 per cent remain undecided.

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“Investors got a fright from the latest polls,” said Mr Labaqui, who explained that they were broadly optimistic at the start of the year, although the tide began to turn with the release of staggeringly high January inflation numbers. “[The Isonomia poll] was like shouting fire inside the cinema. It caused panic. [Wednesday] was a bad day for emerging markets, but every time that happens it’s twice as bad for Argentina, as it’s more vulnerable.”

What’s at stake?

No less than a return of populism to Argentina. The prospect of another presidency for Ms Fernandez clearly has investors on edge, given what it could mean for the IMF programme and the possibility that Argentina could default on its swelling pile of sovereign debt. But there is a danger that their fears could become a self-fulfilling prophecy. If market volatility feeds back into the real economy — fuelling already excruciatingly high inflation, for example — that could damage Mr Macri’s prospects of being re-elected in October.

Luis Tonelli, a political analyst in Buenos Aires, points out that it would not be the first time that Peronism — which has been the dominant political force in Argentina for the last 70 years before retreating into opposition — would benefit from an economic crisis.

“Peronism came to power after an economic crash in both 1989 and 2001. What is in play now is whether that diabolical cycle can be broken, and whether the non-Peronist forces can complete their mandate — or at least whether Peronism can return to power without a prior crisis,” he said.

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Does Cristina Fernández have a real shot at winning the elections?

If the runaway success of her bestselling book “Sincerely” is anything to go by, then yes. Already selling out in bookshops after it was released this week, it is the publishing sensation of the year. Booksellers, who are suffered Argentina’s ongoing recession like everyone else, have reported feeling “popular”.

Pollsters are quick to point out that the elections are still a long way off. “It’s a mistake to jump to conclusions about what could end up happening in the elections,” said Juan Germano, director of Isonomia, of the firm’s recent poll.

He pointed out that when Mr Macri was elected in 2015, the first-round result ended up shaping the result in the run-off vote. In 2015, the fact that Mr Macri received more votes than expected in the first round, and that he won in the all-important province of Buenos Aires, had a huge impact on the final result.

Also, 60 per cent of those polled in the Isonomia survey clarified that they have yet to decide how they will actually vote on the day. And of those who still said they were undecided in the poll, 17 per cent said they would vote for neither candidate, while 60 per cent of them voted for Macri in 2015.

“Journalists, analysts and investors are all trying to work out what will happen in the elections, but the main actors — the voters — have yet to make up their minds,” Mr Germano said.

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