For the small Argentine investor, beating inflation and making a profit, however minor, have been the logical priorities in recent years. But with inflation that reached 40.9 percent in 2016 and looks set to clock in above the 20-percent mark this year, achieving those goals have not been straightforward.
That key tenet of investors, portfolio diversification, is perhaps all the more relevant in Argentina, where volatility and unpredictability have traditionally marked the economy. But for the risk-averse small investor, the peso-denominated debt instrument known as the lebac has undoubtedly been the starchoice since Mauricio Macri assumed the presidency in 2015. lebacs currently pay interest of around 27 percent, with returns varying slightly according to the terms they’re issued via, making them a sure bet to beat an inflation forecast of 22 percent for 2017. (That’s the annual figure for inflation published by the Argentine Central Bank in its latest Market Expectations Survey.)
The Times consulted three financial experts to gauge their top three investment alternatives for small investors in Argentina, and all spoke highly of the Central Bank’s short-term securities.
For Miguel Ángel Boggiano, of CartaFinanciera.com, Argentina’s monetary authority “will continue to attack inflation by stimulating demand for pesos by means of a higher interest rate.”
“In that context, the dollar is expected to move at a pace similar to inflation, which means that investing in lebacs will bring about an annualised yield in dollars of close to five percent, almost without risk. This is something unheard of in the world today,” he added.
Jorge Colina, head of the IDESA economic consultancy, told the Times that lebacs are the ideal choice for investors that are willing or able to wait no longer than six months for returns. In any of the three alternatives he recommended, Colina said the right way to go about them was through a mutual investment fund, as these are “taxfree and offer high liquidity and versatility.”
For Gustavo Ber, director of Estudio Ber, investors “should continue to take advantage of these high interest rates, especially those available with the longer term lebacs, as they are expected to be brought down in the next few months.”
Ber agrees with his colleagues: “These yields are extremely competitive in real terms.” Boggiano’s second recommendation was in fact a warning: to avoid bonds.
“Argentine bond yields are in sync with bond yields in the rest of the world world, and argentina is actually one of the countries with the highest bond yields in the world. But high yields point to higher risks, and by the time the biggest bond bonanza in world economic history comes to a halt, argentina will suffer the consequences, even if it fulfills its macroeconomic duties to perfection,” he argued.
Colina and Ber, on the other hand, considered bonds to be a solid alternative. Both pointed to dollar bonds in particular, with Ber arguing that “investors should look to dollarise their portfolios chiefly through midterm instruments such as the Bonar 2024 or the Bonar 2025, as these currently offer returns of five percent – for a limited time – and this part of the yield curve offers the best risk-to-returns relationship.”
Bond yields will remain high as argentina’s risk premiums will take a while to drop, but Ber did warn that the seven- or eightyear maturity date was key, because the United States’ federal reserve will “continue with its gradual interest rate hike and the unwinding of quantitative easing.” These two developments would bring down yields for longer-term bonds.
The analysts offered up three further possibilities with varying levels of risk.
“The only real money is gold; the rest is credit, Boggiano argued. “We live in a time when we must be on the defensive following the great disasters of capital allocation, as consequence of eight years of zeropercent interest rate policies from the main central banks of the world. The final refuge in the face of uncertainty will be gold.”
Ber placed the riskier option of stocks third on his list, maintaining: “despite the Merval index’s record-breaking run, which opens up the likelihood of a downward correction, investors should continue to opt for stocks … primarily in the energy and banking sectors, as the eventual categorisation of argentina as an emerging market by MSCI will be a new driver that will boot valuations.”
He added: “Shares tied to the construction sector could also be added in this context of greater economic recovery and expectations of a positive result for the government in this months midterm elections.”
For the least risk possible in a three to six month window, Colina suggested investing in fixed-rate peso deposits, which currently offer an annual interest rate of approximately 20 percent.