Barclays draws a worrying economic forecast for Argentina

The bank Barclaysone of the most influential financial entities in the world, analyzed the context of the situation in Argentina and issued a critical and forceful report titled: “Argentina, worse before improving“. The document urges its clients to get rid of their investments in bonds debt due to the uncertainty surrounding the upcominggeneral elections.

The worst is not yet over for the financial giant. From Barclays, the Argentine economist Sebastian Vargas signatory of the report Barclaysadvises investors to move from a position of “Market Weight” to “Underweight“.

This recommendation is based on the triumph of Javier Milei in the PASOwhich has made the dollarization becomes a real possibility. In this context, and given the lack of sufficient dollar reserves in the central bank To carry out this operation, The best strategy for investors is to reduce their exposure.

In other words, They are advised to dispose of their debt bond holdings, given the certain risk that these bonds will experience a further decline in value.

The report points out the risks associated with the primary elections, which could put additional pressure on the economy. The bank’s short-term bearish view is consistent with defensive operations. In this context, it is proposed to change the composition of the investment portfolio, moving from sovereign bonds maturing in 2030 to those maturing in 2041.

Argentina: the impact of the international context

Furthermore, it is stated that under the current political context, aggravated by an unfavorable international context, it is unlikely that there will be an improvement in quotes in the short term. Rather, the trend points in the opposite direction.

“We believe that the market narrative after the PASO has not yet been fully reflected in market valuations and that, over timea correction will occur at lower levels,” summarized Vargas.

For Barclays, the current transition represents a significant risk. The possibility of a second round between Javier Milei and Sergio Massa presents short-term risks. In the case of the plan proposed by the libertarian candidate, it is explained that unfunded dollarization entails an “inflationary shock”, and that the official exchange rate that allows the repurchase of pesos is significantly weaker than the current one.

It is expected that as local players sense an “inflationary shock” brewing, products are likely to be unavailable on shelves and domestic prices will increase. “These goods market dynamics are probablye will materialize before the new government is sworn in, raising concerns about governability“Warns Vargas. Barclays affirms that Massa’s ability to continue supporting “the economy in ruins” will decrease if Milei wins the elections in the first round.

In this context, Barclays warns its clients that “Debt service will likely depend on the order of magnitude of the shock, which is difficult to predict“. The risks associated with the “inflationary shock” are considered particularly relevant in this assessment of the economic and political situation in Argentina.

The report suggests that the dynamics of the goods market will materialize in advance of the inauguration of the new governmentwhich raises uncertainties about the country’s governance. Barclays advises its clients to be prepared for different scenarios, as debt service will be influenced by the magnitude of the disruption, whose prediction is complicated.