The consultant maintains that the phenomenon is linked to the slowdown in inflation and the fulfillment of the IMF goals
For iProfessional
01/15/2023 – 10:17 p.m.
The country risk fell from 2,000 points this week after having touched 2,927 points in the winter, with several series of Argentine sovereign bonds trading below 20 cents for each dollar. Today those bonds continue yielding a lotbut they are worth 50% more.
Sovereign bonds in dollars continued firm during the past week, registering increases of between 6.1% and 8.6%. “Thus, the weighted average price managed to climb above $31, just 5 wheels after exceeding $29,” they said from PPI.
The Merval index measured in market dollars also went up spectacularly going from US$434 to US$624 since August: almost 41%. For reference: in May 2015, the Merval was worth more than $1,000.
Why do they go up?
“We believe that there are essentially two factors,” they say from Econviews. One real and one of expectations.
On the real side, it must be said that the prices of Argentine assets had implicit a few months ago chaotic scenarios with very high probability of default. However, although most of the imbalances have not disappeared, the market is more confident that Sergio Massa’s management will bring some order to the economy.
“Inflation slowed down, the IMF goals were met (with some creative accounting) and a very anti-market rhetoric that previously prevailed escaped,” said the consultancy led by Miguel Kiguel and Andrés Borenstein.
The consultancy maintains that the change of government will bring a more pro-market team with the capacity to reduce the fiscal deficit
It cannot be said, however, that the market is a great believer. “At the end of the day, bonds continue to perform like almost no other emerging country and bank ADRs are worth 20 or 25% of their maximums and energy half, after this rally,” they said, as if to lower the foam.
The second explanation is that, five months from the closing of the lists, seven months from the primary elections, less than 11 months for the change of government and having reduced the chances of a hecatomb, Argentina got a little more attractive for own and strangers. “We still do not see a critical mass of investors interested in Argentina, but we do see an increase compared to a few months ago,” they add.
The logic is that the change of government will bring a team that is more pro-market and with the capacity to eradicate or reduce the fiscal deficit, and ultimately, stabilize the economy. Something similar, remember, happened in 2015, although the situations are not perfectly comparables.
There is a third explanation linked to the good performance of emerging markets. There is a downward trend in country risk in several countries in the region. Ecuador is an example of that. In short, at Econviews they say they are “comfortable” with these prices.
“Argentine bonds below 20 seemed cheap to us and a trigger was missing for them to react. But, just as this rise seems coherent to us, we also warn that there are many imbalances ahead. In the macro, the exchange rate issue and the pressure on the market clearly stand out. debt market in pesos. And to this is added the uncertainty of a complex electoral process where neither of the two great forces have resolved their problems. That will almost certainly imply more volatility along the way and not a straight line,” conclude.
