The president of the Federal Reserve (Fed) from United States, Jerome Powellhe made clear, during the annual meeting of central bankers in jackson holeWyoming, that there is a strong possibility of future interest rate increases before the end of the year. How should this sign be interpreted? investors in Argentina?
As Andrés Reschini, an analyst at F2 Soluciones Financieras, explains, the objective of this decision is to “reach the Fed inflation target in a couple of months” and is taken on the basis of data on the growth of the labor market, economic activity and applications for unemployment benefits.
These indices are the ones that usually move the expectations about the next steps of the Fedwhich were now confirmed with the powell’s messageand modify the decisions of the investors: Everything indicates that the US central bank is going to continue raising rates.
Rate hike: how it affects the financial world
It was a long-awaited message for all world investorsGiven the USA is the economic center of the world, Powell anticipated that the Fed is willing to take measures that are necessary to continue fighting inflation in the northern country.
This decision negatively affects the economy of emerging markets. This is indicated by Christian Buteler, an economist expert in capital marketwho points out that “when USA raise the ratethat usually works as a dollar vacuum cleaner towards the bonds of that country”. That implies the fly-to-quality process of funds, which go towards safer assets with interesting profitability and the emerging they lose appeal.
“The US rates rise and guarantee levels of profitability that leave very satisfied the investor and that gives him a lot of security because it is such an interesting asset”, summarizes Buteler.
The Argentine capital market
However, he explains that, in Argentina, there are not so many big investors have a high volume of international capitals and decide if they stay in the local market because of the rate or go to USA. Consequently, in his opinion, “a rate hikeIn the case of the Argentine financial world, it affects us more on the side of the commodity price than in the financial variable”.
And it is that, on the other hand, raise ratesthe capitals lose rhythm of circulation towards the international trade and commodities and focus mainly on the financial worldfocused on US bonds and rate.
On the other hand, the stock market expert Marcelo Bastante says that “the fed is progressively rising rateswhich were at a level of 0.25 in the pandemic, to the current level, which is the range of 5.25-5.50%, the highest in 22 years.
Highlight that there have already been 20 rate hikes at this time and, although, until a few days ago, it was understood that the slowdown in inflation in the United States would be a window for the upward trend not to continue, but the latest data that became known made the regulatory entity change its mind , as it became known this Friday. And new rises are coming.
How the rise in rates affects the local investor
In this context, how should you interpret the Argentine investor this sign? Quite ensures that, from the theory of finance, every investor has a rate of return that he uses, either as a target or as a reference for evaluate your investments. This rate is made up of a risk-free rateplus the aggregate risk specific to the asset that he is evaluating”, he explains.
Thus, specifically, for a investment in Argentinathe rate has a risk-free component, which is the reference rate for the United States (there is the incidence of the FED rate hike), plus the Argentine country risk and the specific sector in which you want to invest, among other variables.
In this way, although Basita clarifies that, “as you can imagine, the rate of return what an investor wants in Argentina depends much more on the local country riskthere is a component of increase in the reference rate of the Fedalthough it is small.
Meanwhile, it is a most relevant data for those who choose dollarized assets, like the Cedears, to invest. And it is that this announcement of Powell suggests that the shares of US companies could be affected by the low forward for further rate strength. Meanwhile, the dollar tends to strengthen in the world against other instruments of savings and investment in the world, like us currency.
In this way, whoever dollarizes their assets via Cedears may see an opportunity in this rate hikeif, going forward, there is an expectation that, as inflation is controlled, inflation will begin to relax aggressive Fed policy of these last years.
Source: Ambito
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