August may have blemished what’s still a winning year for Lutz Roehmeyer, but that’s not stopping him betting on Argentina.
Far from joining the sell-off of Argentine assets following President Mauricio Macri’s landslide defeat in a primary election last month, the Berlin-based chief investment officer at Capitulum Asset Management GmbH has increased his exposure. He says the opportunity is too good to pass up, even as the country imposes capital controls and plans to delay debt payments.
“You get a lot of interest,” said Roehmeyer, who’s invested in other crisis-stricken countries in recent years, including Nigeria. “The really short bonds are a good opportunity.”
It’s a risky strategy, not least because he may struggle to get his money back out of Argentina. Roehmeyer argues that the capital controls announced Sunday mainly target local companies and individuals, rather than foreign portfolio traders, and there’s enough dollar liquidity to repatriate his peso investments once they mature.
Roehmeyer’s main fund has gained 5.1% this year, outperforming the 3.2% return on emerging-market local-currency bonds. In August it slipped 1.5%, but given his Argentina weighting is less than 2.5%, the losses were mainly due to weakness in emerging markets as a whole. Capitulum oversees almost $1 billion of emerging-market assets.
Thanks to the rout, some peso Treasury bills yield more than 120% even once the proposed maturity extensions are taken into account, said Roehmeyer. At the same time, Argentina’s euro and dollar bonds have fallen to as low as 35 cents. That’s enough to compensate for any default, which anyway wouldn’t happen before the main polls in late October, he said.
“They don’t want to add to the political tumult by defaulting on the external debt now,” he said. “I doubt they’d default in 2019.”
Still, he has taken some precautions with his trades by buying triple-A rated European Bank for Reconstruction and Development bonds that are issued in peso but settled in dollars. He’s also purchased peso non-deliverable forwards, which are settled in the U.S. currency. Three-month NDF contracts were priced at 78 peso per dollar on Tuesday, implying a depreciation of 28% in that period. He thinks that’s too much and will make a profit if correct.