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ARGENTINA | 02-08-2023 13:53

Traders go to US for Argentina stocks to hedge election bet

Investors are cautiously looking at US-listed shares of Latin American companies with operations in Argentina, anticipating benefits from market-friendly policies after this year's elections, but refraining from direct investment until long-term stability is established.

Investors are starting to make the most tentative of moves back into Argentine stocks, looking at a potential regime change following this year’s elections. 

While few are willing to dive into the local stock market, where access is restricted by a mass of currency controls, some are starting to recommend US-listed shares of Latin American companies with operations in Argentina.

Companies like Globant SA, Mercado Libre Inc. and Arcos Dorados Inc. stand to benefit from a shift to more market-friendly policies after October’s election, but aren’t fully exposed to Argentina’s risks. That makes them an easier pill to swallow for investors like Malcolm Dorson, senior portfolio manager at Global X Management in New York. 

“Those are more pan-Latin America, and more global stories,” Dorson said. “Do they have more connection to Argentina? Yes, but they aren’t as affected by key drivers, so we are hedged.”

Shares from Arcos Dorados have surged to a nine-year high in recent weeks, while stocks from software company Globant reached their highest price in nearly a year earlier in July. 

Argentina’s S&P Merval stock index recently touched its highest level in dollar terms since 2019, although international investors have largely steered clear. Capital controls make it impossible for investors to access dollars at the official exchange rate if they want to cash in on their profits.

Rough Waters
Investors are aiming to keep exposure to Argentina, while avoiding the coming volatility as the government — which just closed a deal with the International Monetary Fund after months of negotiations — tries to put a lid on 115% inflation and avoid a messy currency devaluation ahead of primary elections in August. 

The nation is facing a deep recession this year and foreign reserves are at critical levels, limiting the central bank’s ability to prop up the peso. Moreover, conditions of the deal closed last week with the IMF include restricting the central bank’s ability to intervene in the foreign exchange market to moments of “disorderly conditions.”

“We have made the decision to stay away from investing directly in the country until we have a long period of macroeconomic and political stability,” said Ignacio Arnau, a Madrid-based money manager at Bestinver Asset Management, which has about 5.8 billion euros ($6.4 billion) under management. 

Arnou has investments in shares of MercadoLibre, Arcos Dorados Holdings and Globant.

Morgan Stanley sees a 33% upside in Arcos Dorados — the bank’s top pick across Latin American restaurant operators. The risk of having about 16% of sales coming from Argentina is mitigated by expenses in pesos, according to analysts led by Javier Martinez de Olcoz Cerdan. A potential 50% plunge in the currency would affect results only by 5%.

Still, a turn toward a market-friendly government should benefit most Argentine companies in the long run. 

“Any incremental news ahead of the elections will be market positive,” according to Dorson at Global X.

 

—By Scott Squires and Vinícius Andrade/Bloomberg
 

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