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Monday, March 27, 2023

The super dollar soars: what is the impact on Argentina

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The strengthening of the currency ended up generating nervousness among risky investors and those who invest in Argentine sovereign bonds. “Expectations are growing that the Fed will be forced by resistance to a rapid slowdown in inflation to a higher for longer strategy, which affects global risk appetite and also adds risks to a recession,” said analyst Gustavo Ber.

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All Fed decisions have direct impact on emerging countries, since investors dismantle their positions in them and, in the face of global uncertainty, seek refuge in places of greater economic security. Therefore, the outflow of capital could be a direct effect.

Added to this panorama is local political uncertainty in the midst of an election year. That is why what is expected is that the market begins to assimilate this rising “super dollar” reflecting in deep falls in the Buenos Aires stock market and in bonds. For its part, this data is also negative for the Argentine peso, for the CCL and for the MEP, which operate without restrictions.

In the fixed-income segment, some sovereign bonds in dollars accumulate falls of more than 10%, which ends up having an impact on country risk, making it difficult for the Ministry of Economy to continue with the repurchase process and have a real positive impact.

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Juan Alra, Portfolio Manager at Southern Trust TPCG Group, he told Ámbito that, given this scenario of higher rate increases, dollar bonds may continue to fall. “An increase in rates causes capital to move from risky countries to less risky ones. To see these trends, one usually looks at the emerging market bond index, an ETF that replicates an index of sovereign debt in dollars from emerging countries that had a monthly fall of 4%”, he stated.

Likewise, regarding the local sphere, Alra highlighted: “We have multiple factors that could deepen these declines even further. Investors’ fear of default, the upcoming elections and the uncertainty of government policies also generate instability in bonds and the dollar. This year the course of Argentine investments will be marked by the electoral results and the firmness of the next measures. However, emerging countries will rely heavily on the aggressiveness of the Fed. Stronger policy will likely cause bonds to fall further. We are not alien to the globalized world”.

Source: Ambito

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