Sister Karina, the limits of the blender and the dilemma of the dollar stocks

Sister Karina, the limits of the blender and the dilemma of the dollar stocks

Yesterday the data for March was released and the market estimated that the CPI would give approximately 12% average. As usual, the Central Bank (BCRA), which has a clear deck, anticipated and decided another cut in the monetary policy rate, leaving it at 70% nominal annual rate. Very negative in real terms.

After the bonanza of dollar bonds, which seems to take a break until good news emerges, attention continues to be focused on inflation but without neglecting politics, which despite the libertarian leader, he also dedicates time to the thread, in particularly, in relation to the rearming of the Supreme Court. It’s his priority. But back to inflation, An encouraging fact was that the first week of the month, in the core measurement, was the lowest record since the end of 2022 for a first week.

About whom they do not stop decanting praise and envy is the millionaire investor Eduardo Costantini who, through his Consultatio, acquired the financial group TPCG-Southern Trust. The Malba mentor will merge Consultatio and TPCG after acquiring 100% of both companies, thus becoming one of the largest financial services groups in Argentina and Uruguay. The two mutual fund management companies (FCI) involved in the merger manage approximately a portfolio of almost $1 trillion ($621 billion Consultatio and $378 billion Southern Trust) and will become the third non-bank management company in the country behind Schroders and Delta, closely followed by Balanz and MegaQM. Now, as in any merger, we will have to wait for the diaspora of duplicate executives to go where it will go; for now, several men on the selling side have begun to listen to offers.

But the other big news that woke up the market, although it was a pending sale since the collapse of convertibility, was the sale of the British HSBCthe last of the Mohicans of the ’90s that came through the purchase of the then Roberts Group, to Galicia Group at US$550 million, which positions the traditional bank as the second largest in the country after Nación and the first managing company of FCI. What did Galicia buy? In addition to the insurance business and the FCI administrator, the HSBC bank has more than 100 branches and some 3,100 employees and a customer base of one million people and companies. Now between both FCIs, Galicia will manage almost 16% of the industry’s total assets (Galicia manages $3.7 billion and HSBC $1.5 billion.

Neither dull nor lazy, the grader Moody’s came out to bless the acquisition operation and possible merger of Galicia and HSBC Argentina, pointing out that “it will improve Galicia’s franchise in the country, since it will have access to the operations and client portfolio of HSBC Argentina, which is positive from a point of view. from a credit point of view.” It seems that new winds are blowing in the Creole financial market, perhaps in tune with what is coming from the libertarian hand.

But since nothing is free, abroad they estimate that HSBC will record losses of more than 1,000 million euros – before taxes – from this sale in the first quarter of the year. To this will be added another 4.9 billion in accumulated losses due to foreign currency conversion reserves. However, Europe’s largest bank assured that the impact on the CET1 capital ratio will be insignificant and stressed that after its departure from Argentina it maintains its commitment to its businesses in the US and Mexican markets.

For the rating agency S&P, The agreed transaction is in line with the group’s objective of focusing on its international customer base. They believe that the sale of the Argentine business will have a modest effect on HSBC’s capital and profits, as it was a small business focused on local clients, which limited synergies with the group’s cross-border financing strategy. The sale agreement follows the completion of the sale of the French retail business and the Canadian bank’s subsidiary in the first quarter of 2024.

In a financial after-hours event with whiskey tasting included, three of the most influential local traders began to debate, between malt and malt, what to do now with the CPI data for March and the lowering of the BCRA rate. It is worth noting that this trio was among those who expected a CPI of 12% for March. They agreed that given the lower expectation of inflation via long CER bonds and the official macro strategy there was no other way but to continue liquefying the excess liquidity, maintaining, of course, the stocks.

But although in the current context another reduction in the BCRA rate seemed risky because a lower negative real rate could boost financial dollars, they believe that the absorption of pesos via fiscal surplus, the drop in demand, and the greater supply of dollars will keep the gap low.

In any case, they recognized that having stocks and a negative real rate requires neutralizing risks, so when making investment decisions, caution will prevail in selecting the term of the CER bonds. One of them recalled that in mid-2022 there was a dismantling of positions in medium and long CER bonds operating with very low rates, in some cases negative, and a jump in the gap. And although this year being aggressive with the deadlines was the best strategy going forward, it would be better to limit the risk in bonds that mature in 2025 such as the T2X5 Treasury bonds that mature in February and the TX25 bond that matures in November, and for the risk lovers the new zero coupon TZXD5 bond that matures in December.

Of course, at the close of the tasting, they concluded that all this macro scaffolding is supported by the search for a fiscal surplus, which raises the paradox that what allows investors to accept negative real rates is precisely the government’s conviction to reduce expenses and increase income. prosecutors.

After the tasting, an experienced political scientist with links to all the parties joined the dinner and explained that Javier Milei continues to have the initiative, based on his personal leadership and the approval of the 60% of society that is supporting him based on the resentment towards politics, and that the adjustment has not decreased support, which is not for the government but for him. They absolve him for his mistakes and praise him for his achievements, and it is others, their own and others, who are to blame.

The people who support him buy the idea that the main enemies are politicians, unions, social movements and anyone he points out as privileged. People hate politics. In this sense, the uncovering of corruption cases strengthens it.

But in the context of general support, some cracks are observed: the increase in prepaid and schoolsmakes it foreseeable that they will extend to rates, It is worth remembering the spirit of the people when the bills arrived during Macri’s time. And although the support is solid, quantitatively it is not so extensive since on average, for the main variables it shows 56% reflecting the electoral result. While there is no indication, for now, that support will wane, it is not clear how much it may suffer from the deepening of the adjustment. According to the analyst, experience indicates that if lower inflation were the cost of a great recession, the government would have to lose support significantly. In other words, Milei better not go too far with the recession.

In a large and reserved Zoom with two of the main Argentine consultants, with direct access to the libertarian team, and regular local references for the IMF technical missions, not only was Argentina discussed but also the external context.

What was said? On the external side, it is observed that the global economy remains solid in terms of growth while inflation, which has decreased, today seems to have a floor that it cannot pierce, around 2.8%. As a consequence, the market expects interest rates to remain high longer than initially expected (previously they expected 4 cuts and now there would only be 2 this year) and that could keep commodity prices stable, otherwise they could go down a little more.

While in Argentina, the Government is containing inflation and keeping public accounts in order, but in a rather disorganized manner. The project of the Base Law and the rate adjustments are the beginning of a consolidation of the fiscal balance and surely in a second step the Government will begin the process to exit the exchange rate but it will not be instantaneous but would allow the economy to begin a recovery process towards the end of the year.

The projections show that this year the GDP would fall between 3 and 4% despite the agricultural recovery, private consumption would fall by 8%, inflation would be between 180 and 200%, real wages would fall almost 12%, and the surplus fiscal would close at 1.5% of GDP. This would be the base scenario.

But what both the consultants and the businessmen and bankers who participated in the meeting made clear is that today everyone is looking at what the Government is thinking of doing in the long term, at least in fiscal and monetary matters, after having accommodated the economy in a shambles. Today the official priority is inflation but then what, that is what everyone wants to know because the way in which the fiscal accounts were adjusted and the blending strategy has short legs. It is not enough to make the economy react. Furthermore, the negative real rate is only viable with stocks.

In another virtual meeting, more populated by foreign investors, the enthusiasm with the region this year was perceived amid a general rebound in emerging markets. They said inflation and interest rates are trending downward across the region, while growth, while moderate, has largely exceeded expectations.

In this context, they explored this feeling of recovery for Latin American assets and concluded that in the Brazilian case the capital markets have recovered, but some analysts remain skeptical; In the Argentine case, bonds have recovered thanks to the bet that the new right-wing government can fix the economy with free market reforms, although the window to do so is rapidly closing; and in the Ecuadorian case they pointed out that the new administration is dealing with an increase in drug-related violence that is costing the country funds it can hardly afford and that it could have difficulty obtaining loans.

What was said at a barbecue between young operators? Pay close attention to the destination of the pesos that the Treasury captures with the Lecaps because they wonder if Toto Caputo will buy dollars again to ensure the Bonares and Globales payments for July.

Regarding the new Puts offered by the BCRA, which unlike the previous ones, can only be exercised 30 days before the securities mature, what the BCRA actually offers is liquidity to the banks almost at the end of the life of the securities. bonuses. But these new liquidity options have much less attractive conditions in what appears to be an attempt by the Government to contain monetary issuance by exercising puts during the remainder of 2024.

And there was also some disagreement over the debate on the famous PBI coupon and its possible mega-payment if Argentina grows again: apparently, even taking the 2012 base change, it is practically impossible for the coupons to trigger payments before December 2030, and for For the present value of the flows to exceed the 3.3 dollars at which the TVPY currently operates in the secondary market, Argentina should grow every year about 5.75% between 2025 and 2034. According to the people of 1816, the GDP coupons continue to be a legal trade, a bet that foreign justice will force the country to compensate bondholders for having manipulated the 2013 growth figures, making it difficult to see value simply in the country’s future GDP.

Source: Ambito

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