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ECONOMY | 10-08-2023 15:20

Here are Argentina’s assets to watch before key primary election

Argentines will head to the polls in a nationwide primary election on Sunday, with traders watching closely for signs of regime change in the debt-ridden nation mired in yet another economic crisis.

Argentines will head to the polls in a nationwide primary election on Sunday, with traders watching closely for signs of regime change in the debt-ridden nation mired in yet another economic crisis. 

The primaries act like a dry run of the October first-round election, with obligatory voting for citizens over the age of 18. Four years ago, President Alberto Fernández won the primary vote in a landslide, triggering a market collapse that erased billions in value almost overnight.

Argentina’s local markets are fairly illiquid — stocks are mostly played via ADRs, the official currency is largely held steady by government intervention while the so-called parallel exchange rate is derived from calculations based on prices of securities purchased locally and sold abroad, providing an approximation rather than a clear benchmark. The country’s most widely traded assets are sovereign bonds, which tend to move only in US hours. 

Here are key assets to watch ahead of Sunday’s vote:

 

Sovereign bonds
Argentina’s sovereign bonds have gained in recent weeks on the expectation voters will favour a more market-friendly candidate in Sunday’s vote. The nation’s recent deal with the International Monetary Fund has also pushed prices higher, even if an incoming government will likely need to renew talks with the Washington-based lender over its US$44-billion loan programme when it takes office in December. 

Here are some of the most liquid Argentine sovereign bonds: 

– ARGENT 0 ¾ 07/09/30 Corp
– ARGENT 3 ⅝ 07/09/35 Corp
– ARGENT 3 ⅝ 07/09/46 Corp

 

Corporate bonds
Companies have been jumping at the chance to refinance their debt at rock-bottom rates as investors snap up dollar assets to protect against a devaluation. That’s giving investors confidence they may be able to ride out any volatility after Sunday’s vote, according to Juan Manuel Vázquez a sales trader at Puente in Buenos Aires. 

“The market feels comfortable with some corporate names given their low leverage and confidence that management has proven over and over that they know how to weather difficult storms like the one Argentina is currently in,” Vázquez said. “There are still opportunities out there, especially in names like YPF or some power generation bonds.”

However, “if Massa does better than expected, it could bring more volatility to all asset classes,” he added.

– YPFDAR 8 ½ 07/28/25 Corp
– PAMPAR 9 ½ 12/08/26 Corp
– MSUNRG 6 ⅞ 02/01/25 Corp
– GNNEIA 8 ¾ 09/02/27 Corp
– AEROAR 8 ½ 08/01/31 Corp
– IRSAAR 8 ¾ 06/22/28 Corp

 

Provincial bonds
Bonds issued by some of Argentina’s regional governments — and especially securities from Buenos Aires Province — are other investor favourites because they begin paying principal earlier than similar-dated sovereign notes, according to Siobhan Morden, head of Latin America fixed income strategy at Santander.

“The still default level prices for Buenos Aires Province look misaligned to our no default view after the political transition,” according to Morden. “Buenos Aires Province may displace El Salvador as the top performer in the second half of the year.”

– BUENOS 5 ¼ 09/01/37 Corp
– PDCAR 6 ⅞ 12/10/25 Corp
– NEUQUE 6 ⅝ 04/27/30 Corp
– BUEAIR 7 ½ 06/01/27 Corp

 

The peso
Inflation running at more than 115 percent is putting pressure on the government’s labyrinth of currency controls as the Central Bank runs out of dollars to continue propping up the peso, and investors brace for a devaluation of the nation’s official exchange rate by as much as 20 percent after the primaries. Economists from the country’s main opposition party say a devaluation at some point is inevitable and investors are increasingly hedging in cash, bonds and futures as the Central bBank burns through reserves.

Argentina has a myriad of parallel exchange rates that investors — and locals — will be watching. The 'blue-chip swap,' a parallel rate commonly used by financial markets that trades at around double the price of the nation’s official rate, is likely to be volatile after the vote. It’s weakened as much as 1.6 percent this week to touch a record 591 pesos per dollar before strengthening.

– Blue-chip Swap
– Official rate

 

Equities
While few international investors are willing to dive into the local stock market where access is restricted by currency controls, local investors will be watching the S&P Merval index, which recently touched its highest in dollar terms since 2019. Some foreign investors are starting to recommend US-listed shares of Latin American companies with operations in Argentina. 

– YPF SA
– Pampa Energia SA
– MercadoLibre Inc.
– Globant SA
– Arcos Dorados Holdings Inc.
– Grupo Financiero Galicia SA
– Banco Macro SA
– Cresud SAICIF y A

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by Scott Squires, Bloomberg

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