The stock of Leliqs with the paid liabilities of the BCRA and its disarmament, the fiscal adjustment and assume the debt commitmentsthe possible dollarization wave exchange rate unification. All topics that were talked about in recent days and that will be key to defining what will be the objectives that the Government of Javier Milei has in the short term. He markethowever, He never rests and has already discounted some events. Let’s see which ones.
BCRA remunerated liabilities ball
Since he won the runoff election, Javier Milei highlighted the “Leliq problem” as a priority both to remove exchange controls and to reduce the inflation, Otherwise, he assured, we would enter hyperinflation. And although the transition is still continuing, these signals have already generated movements in the market before he takes office. So, This week the process of dismantling the Leliqs stock by financial entities continued.
“Despite observing an improvement after the 10% rollover observed last week, of the maturities corresponding to 11/28 only 23% was renewedwith 5% corresponding to private entities and the rest being awarded to public entities,” reported this week Invest in the Stock Market (IEB). So, Almost all of the non-renewed Leliq stock was transferred to one-day passes.
“This way, The stock of passive passes exceeded that of Leliqwhich implies that the BCRA is renewing and paying interest daily for more than half of its total remunerated liabilities, which currently triple the monetary base. As these are operations with such short terms, the weights contained through them could be released more easily almost instantlywith the consequences that this would have in terms of acceleration of inflation”reported the same entity.
Juan Manuel FrancoChief Economist of the SBS Group analyzed: “We consider the intention to normalize the BCRA balance sheet to be healthy., given that the financial position of the monetary authority is a fundamental factor when evaluating its capacity to anchor expectations, which today are strongly unanchored. However, we highlight that, measured in CCL dollars, the stock of paid liabilities is far from the maximum of 2017although the negative level of net reserves leads to a weak equity position of the BCRA, which must be healed.”
And he expanded: “We believe that the treatment that ends up being given to the remunerated liabilities of the BCRA should try to avoid a duration mismatch with deposits in pesoswith the vast majority with placements of 30 days or less, so as to avoid shocks in the banking system. In any case, for the endogenous expansion of pesos that represent the interests of remunerated liabilities to cease, it must also be avoid factors that can increase them: purchases of ARS debt by the BCRA and direct monetary assistance to the Treasure, increased in recent years, which had to be sterilized via Leliq.”
Exit from the exchange rate trap or dollarization?
One of Javier Milei’s flagship campaign proposals was dollarizationhowever, withThe appointment of Luis “Toto” Caputo as Minister of Economythe market began to to discount the idea of not be carried out, at least, in the short term. This could be evidenced in a drop in financial dollars and in the illegal exchange rate. So for the consultant 1816the CCL was very weak this week, first because The market now disbelieves that Milei chooses to dollarize as part of its stabilization plan and second, the settlements of the Export Increase Program.
“The presence of the former finance minister in the cabinet seems put on pause the idea of dollarizationconcentrating efforts on a series of monetary and fiscal reforms and a stabilization and deregulation plan, which added to the trip of the president-elect with his designated minister to the United States gives calm signals to the market. Everything would indicate that Milei and his team would first seek an orderly exit from the snowball of paid liabilities of the BCRA avoiding unleashing chaos,” they explained from IEB.
However, from a report by a private consulting firm they assured that, a CCL at $850 is similar to Duhalde’s 4 to 1 in 2002: A Real Exchange Rate with a unified exchange market would result in a current account surplus with real appreciation. “What justifies a free FX so above that which balances the current account (under a unified FX) is the possibility, however remote it may seem, of dollarization and/or the failure of Milei’s first stabilization plan“, they specified.
While, In the movements of the Matba Rofex futures curve in recent days, notable declines were observed “pushed again by Milei’s economic signals and positive expectations regarding the next government. It would seem that the market expects a convergence for the exchange rate below $800, which would be compatible with the accumulation of reserves in terms of the real exchange rate.“, they said from IEB.
Fiscal order, economic program and financing
A report of SBS Group recalled: “The primary fiscal deficit for October was in line with that of September, although increasing in real terms by 32.1% year-on-year. It thus stands at 1.75pp of GDP in 10 months and at 2.50pp of GDP in the last 12 months. We consider that, among the multiple macro imbalances that the new government must address, “The fiscal plan must be the main anchor so that the rest of the variables can normalize in a sustained manner.”.
The elected president Javier Milei In several statements since he won the runoff he said that “fiscal balance is not in discussion” and? will make debt commitments “strictly complied with”. Milei later added that “I am going to make a strong fiscal adjustment to pay the debt.”
“We highlight as positive the commitment of the new government to its obligations, although we emphasize that, with the willingness to pay ratified by Milei, the focus will now turn to the ability to pay the debt. In relation to the debt in pesos of the Treasury, we reiterate that this is almost entirely indexed either to FX A3500 or to CER, Therefore, given the adjustments that we estimate will happen sooner rather than later, obligations in current pesos would increase substantially“he explained Frank.
Where to invest?
“We can venture then that what you pay is the possibility of a normalization of the economy Argentina facing 2025. Under these assumptions It seems sensible to conclude that current values are more than a fair price. and that the post 10D delivery will be key to determining the course of the S&P Merval”, they said from IEB and they recommended: Loma Negra, Cuyana Gas Distributor, Transener, Central Puerto and Transportadora de Gas del Norte and Telecom.
Refering to fixed income in pesos, SBS Groupexplained: “In terms of investments in pesos, the adjustment that we expect in relative prices and FX A3500 for the first weeks of government, continues to put value on indexed instruments to cover capital. That said, we believe that timing is essential. For this reason , we prefer for the short term (December to 1H24) papers linked to FX A3500 such as dollar linked and dualshighlighting here TV24 or TDJ24. Thinking about 2H24, we prefer options CER (top picks T4X4, T2X5 and TX26) that we believe by then would better capture the inflationary acceleration.”
Regarding the bonuses hard dollar They recommended, from SBS, the GD41 “as a top pick given its recent poor relative performance, to which must be added good coupons and the Indenture 2005. We also highlight the interesting return to these prices of GD30whose amortization in July 2024 we believe will take place”.
Lastly from IEB They proposed different scenarios in terms of objective IRRs for the sovereign debt, trying to estimate the potential upside in each of the securities. They assured that Local debt offers very interesting direct returns even in the least optimistic case in which the IRR is at levels of 20%. “It is observed that the potential upside is much greater in securities with closer maturities with the AL30 and GD30 which are the most liquid titles offering returns above 40% in all cases”, they closed.