Argentine stocks could suffer another bout of volatility as the country is on the cusp of a leadership shake-up while in the middle of an economic crisis.

Market-friendly President Mauricio Macri is expected to lose his reelection bid on Sunday to leftist Alberto Fernandez and his running mate, former President Cristina Fernandez de Kirchner. Macri suffered in August an embarrassing defeat to Fernandez that sent Argentine’s stocks and the country’s currency crashing. Since then, markets have been pricing in a Fernandez victory.

But questions still remain about how Fernandez would turn around Argentina’s spiraling economy and restore investor confidence. That uncertainty could stoke more volatile swings in Argentina’s already fragile capital markets moving forward.

“The winner will inherit an economic crisis,” said Stuart Culverhouse, head of sovereign and fixed income research at Tellimer, a research firm specializing in frontier and emerging markets, in a note. “What will matter more for investors after the election will be what Fernandez says and does, and who he appoints to his cabinet; the sooner he puts forward a serious and credible economic programme, the better.”

The Argentine economy has been collapsing for more than a year as the Macri administration removed several state subsidies while inflation was skyrocketing. Argentina has seen five straight quarters of economic contraction. Meanwhile, inflation has surged to 53.5% in September from 25% in January 2018.

The sharp economic contraction was followed by a steep drop in Argentina’s currency. Since January 2018, the dollar is up more than 200% against the Argentine peso.

On Aug. 12, the peso got clobbered by more than 20% against the U.S. dollar after Macri lost the primary elections to Fernandez by a wider-than-expected margin. Argentina’s Merval stock index, which at the time sported the biggest year-to-date gains in the world, crashed by losing a third of its value that day. Since then, the Merval is down more than 18%.

READ ALSO  State Department Neuters Trump EO Barring Immigrant Workers As H-1B Visa Malarkey Continues

Argentina tried to defend its currency by raising rates to no avail, leading to a massive spike in government debt. The country’s debt-to-GDP ratio jumped to 86.1% in 2018 from 57.1% in the prior year, according to IMF data.

“The broader stress, in debt/GDP terms, has been caused by the collapse of the currency,” said Dev Ashish, a Latin America economist at Societe Generale, said in a note. “There has been a persistent concern that the government has not moved quickly or adequately enough to bring its fiscal house in order and improve the growth climate for foreign investment inflows.”

Ashish noted Argentina’s problems worsened after Macri suffered a surprising defeat in the country’s primary elections in August. He pointed out that Macri’s shocking loss was followed by a flight of capital that slashed Argentina’s foreign exchange reserves to $48 billion from about $80 billion.

“Since fresh debt and foreign investment are out of reach under the current circumstances, the restructuring of external debt is imminent,” Ashish said.

The Argentine government said earlier this year it wanted to restructure its debt bondholders and the International Monetary Fund, which signed off on a $57 billion bailout for Argentina in 2018.

But Fernandez has not presented clear ideas on how his administration would deal with these and the other issues the country faces. He previously endorsed the idea of a restructuring similar to Uruguay’s in the early 2000s, which allotted the government more time to repay its debts without a haircut. However, that seems unlikely given Argentina’s dire situation.

Alejo Czerwonko, emerging markets strategist at UBS Global Wealth Management, said Fernandez’s views on how the economy should be run are unknown, and the reaction in assets after the election is difficult to judge at this point.

READ ALSO  U.S. shoes company Skechers opens flagship Paris store

“Who does he nominate for finance minister? and the central bank president. There’s no clarity on that,” Czerwonko said. “what are they going to do on the fiscal path? Where do they stand vis a vis interest rates? Where do they stand on capital plans that have already been introduced?”

Argentina’s situation has left investors in Latin America with a dark outlook of things to come.

A survey conducted by Bank of America Merrill Lynch found that 57% of managers in the region think the country’s political situation is “not even close” to bottoming. The survey also found just 13% of LatAm fund managers expect Argentina’s situation to improve. (The survey was conducted Oct. 4 through Oct. 10 with 30 panelists managing approximately $64 billion in total assets).

“The main problem for us in Argentina is the past has not been pleasant,” said Teresa Barger, co-founder & CEO of Cartica, an asset-management firm specializing in emerging markets. “We have gotten burned by Argentina so many times that we have to make sure to not overlearn the lessons of the past.”

She noted, however, investors should keep an eye on Argentina so they don’t miss out on any potential opportunities.

—CNBC’s Patti Domm and Michael Bloom contributed to this report.

Subscribe to CNBC on YouTube.