Home » News » Why Argentine stocks listed in New York consolidate their bullish streak so far in 2022

Why Argentine stocks listed in New York consolidate their bullish streak so far in 2022

Photo REUTERS/Mike Segar/File

Argentine stocks continued their strong bullish trend yesterday, in contrast to a New York market that saw far more downs than ups. Local papers, which are listed through ADRs in New York, thus consolidate their recovery and have practically not fallen so far in 2022. On the contrary, the Nasdaq index that groups the main technology stocks fell more than 27%, while the S&P 500 index lost 16%.

The main increases were yesterday on the energy side: YPF rose 4%, Vista Oil 1,53% y Pampa Energy another 0.93%. Banks also had a solid day, as Macro which gained 2.8% and Galicia 2.3%, in all cases in dollars. The Merval index is kept measured in dollars (exchange rate “counted with settlement”).

The rise in rates that has already begun in the United States and the issuance of bonds by the Federal Reserve to absorb dollars issued during the pandemic keeps investors around the world on edge. In recent weeks, a strong outflow of capital from risk assets has deepened, from which almost no one was spared around the world.

The solidity shown by Argentine stocks, unexpectedly for many, contrasts with the weakness of bonds. The Argentine titles in dollars continue in the doldrums, yesterday they skidded again up to 1.6%. As a consequence, the country risk rose above 1,900 basic points and is close to the annual maximums. The bonds are already trading again with parities close to USD 30, anticipating the payment problems that the country will possibly face as of 2024 or 2025.

Therefore, Argentine stocks and bonds show very different behaviors. What is behind this phenomenon? There are several factors that help to understand this particular situation a little more, among which are the following:

“Technical” positions play against Argentine bonds: The large investment funds are full of local titles, which they received after the 2020 swap. Minister Martín Guzmán had promised a course and a series of measures that he never fulfilled, so the prices are far from what they were expectation at the time of restructuring. These big investors have more Argentine titles than they would like. In this climate of great uncertainty in the global markets, they do not hesitate to go out and sell, even if it is with heavy losses. The situation is very different in the case of shares. After the decision of the MSCI to declare the Argentine market as “stand alone”, that is, below the “border” category, the funds that hold Argentine shares went out to sell them. Therefore, now in the midst of strong global turbulence they no longer have local paper to sell. This is a key aspect to understand why they resist much better.

So far this year, Argentine stocks have remained practically stable in dollars, amid the fall in global markets. The case of bonds is different, which continue down the ravine and returned to levels of 1,900 basic points of country risk

The lack of dollars hits bonds much harder than stocks: the agreement with the IMF establishes as one of the main measures the need to accumulate net reserves, this year for an amount of USD 5,800 million. However, he has great difficulty in achieving it. This opens up more fears regarding the possibility of a sharp devaluation. But at the same time it reflects the problems that Argentina has to obtain resources in order to comply with the payment of the debt in foreign currency. Of course, a new government from December 2023 could generate a wave of confidence and thus regain access to markets. But today it is still seen as something distant. Stocks are much less affected by this scenario. Even corporate bonds – largely issued by companies that are also listed – are trading well above sovereign debt, making it clear that they are investor favourites.

Company valuations are very depressed: Argentine stocks trade at steep discounts to their regional peers. Therefore, For many investors, they represent a good opportunity to buy cheap and wait for a change in climate after the presidential elections at the end of next year.In the case of bonds, the decision is a bit more difficult. This is due to the well-founded fear of a possible new restructuring in the event that the Government fails to refinance its maturities. In this scenario, the bet on local debt is not so obvious, especially in a scenario of rate hikes in the United States and soon also in Europe.

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