Javier Milei won and not even in the most remote scenario of the consultants was it expected that he would come out first at the national level or that he would prevail by more than 30% of the votes. The three-thirds theory gained strength and the market reacted. Bonds in dollars accumulated strong falls, while the local stock market advanced 26.3% in six rounds in pesos (despite this, it fell 5% on Monday in dollars to recover 2% on Wednesday).
The Palacio de Haciendas also made decisions after the elections: the government ordered a 22% jump in the official dollar, anchoring it at $350 until October, validated a rise in the interest rate to TNA 118%, and generated a new restriction on MEP and CCL operations. Although the real multilateral exchange rate rose to its best level in 2 years, there is speculation of double-digit inflation in August and a loss of competitiveness.
How to analyze this new electoral scenario?
For Juan Pedro Mazza, Fixed Income Strategist at Cohensaid that “the three main presidential candidates share pro-market profiles: all propose a stabilization plan anchored in a fiscal adjustment program that includes a correction in the exchange rate, a tariff disclosure and a (partial or total) lifting of exchange controls“.
Mazza also asserted that they agree that “public debt is manageable and must be honored. In addition, it is unlikely that whoever takes office on December 10 will have a majority in Congress, which will limit the reform agenda. For these reasons, it seems unlikely that we will see extreme measures, such as dollarization, in 2024“.
In this framework, “we expect a similar behavior of the macroeconomic variables in the three scenarios. A devaluation jump by the end of 2023 or beginning of 2024, with its corresponding transfer to prices (inflation) and reduction in the gap (enhanced by the lifting of financial restrictions). The main difference between the candidates will not be the direction of the ads, but the speed and depth with which they will try to make them, “he analyzed.
“The result of the PASO was a black swan: no survey anticipated the result that ended up being given: Milei (LLA) as the candidate with the most votes and JxC and UxP with a lower volume of votes than expected. There is no clear winner that allows us to infer the result of the October general elections. It will be an election of three thirds in which the three forces can reach an eventual ballot. What can be clear is that today more than 65% of the electorate turned to pro-market candidates and with an alignment to the right”contributed from Invest in the Stock Market.
Possible bond investment portfolios
For IEB, a way of traverse macroeconomic dynamics is to maintain the distribution of the portfolio by currency, with 68% of it in assets denominated in dollars and the remaining 32% in instruments in pesos.
“As to dollar assetswe increased by 4% the holding of AL30 sovereign bond, given that at parities of less than 30% it becomes attractive again if it is observed in the long term. Also, it is important to mention that as long as current regulations are complied with, this bond has the particularity of functioning as hedging instrument against the dollar for large treasuries”, they specified.
On the other hand, they chose to hold 24% in the IEB Dollar Fixed Income Fundin order to “mitigate the volatility that the local context brings with it, through a portfolio made up of sovereign and corporate bonds from Latam and the United States.”
The IEB portfolio also allocates 12% to ERC instrumentsespecially the Lecer November (X23N3) which currently has a TNA of 86.4%. In turn, they allocated 20% to fixed-rate instruments through the Led October (S31O3) which has a TNA of 109.7%, equivalent to a TEM of 8.61%, after the rate increase by the BCRA to levels of 118% TNA.
for profiles very riskyfrom this broker they opined: “The fall in the parities of the sovereign bonds took them to values of 4 or 5 weeks ago, which can be an interesting opportunity to enter if you are willing to assume some volatility in the short term, Given that, with a long-term view, we remain optimistic and believe that the Argentine debt has a lot of value. we continue to favor the AL30, which is trading below the more aggressive recovery values of $30 while continuing to display a considerably high jurisdiction spread relative to its NY peer, currently standing at around 21%.”
From Cohen They also made various recommendations. Regarding debt CER for the remainder of 2023they said: “The post-PASO exchange jump was immediately transferred to prices, we expect inflation above double digits for the August-September two-month period. We favor a combination of the November LECER (X23N3), some October fixed rate (S31O3) and the April 2024 CER bond (TX24).”
They also recommended increasing positions in dollar-linked and dual bonds to 2024, whose rates went into positive territory. “We highlight the dual bond to February (TDF24) and the dollar-linked to April (TV24), together with corporate dollar-linked FCIs to reduce exposure to the sovereign“, they described.
Regarding maintaining positions in Argentine assets, from Cohen they stated “remain bullish on hard-dollar bonds. From the STEP they fell by 15% and their prices already discount a very pessimistic scenario. Thus, the risk-return ratio remains very attractive.” And finally dollarize part of the portfolio as a defensive strategy: “We allocate a significant portion of the portfolio to prioritizing stable returns in dollars, minimizing Argentine sovereign risk. Possible vehicles for coverage: corporate bonds, CEDEARs, FCIs in dollars or even dollar bills“.
Finally, they made recommendations according to the candidate. On the Patricia Bullrich stage: dollar-linked, sovereign, provincial and less gap. On the Sergio Massa stage: CER and coverage, less sovereigns and dollar-linked. And finally on stage Javier Milei: more corporate DLK (less sovereign), more gap and less provincial.
Source: Ambito
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