Market, is it ahead of the election result?: what to expect in stocks and bonds before October 22

Last Friday the Buenos Aires stock market managed to return to 700 points measured in dollars (CCL) and there were leading stocks that jumped up to 30% in pesos in the week, then important profit taking. Is this a “dead cat bounce,” or are stocks acting as a hedge? For its part, Dollar bonds, although they rebounded on Friday in New York after a long bearish streak, accumulated falls of up to 15% only in the first week of the month (the country risk fell for the first time in 15 days at the end of the week), while the debt in pesos registered three consecutive days in the green after the strong “sell off” in September.

All in all, what can we expect for these last 8 wheels before the October 22 elections? “The increase in the Merval, far from being a trend, is a consequence of the ups and downs typical of these contexts of uncertainty”he told Ambit, Eugenia de Iruretahead of research at Bavsaand expanded: “Volatility is expected in the coming days because the electoral result remains open and there is little clarity about the economic plan of the main candidates.”

For its part, for Julio Calcagnino, Research Team Leader of TSA Bursátil“taking positions in financial assets in the current context is a highly uncertain decision. This is mainly due to the lack of clarity in the economic plans of the different political actors. Although general objectives or guidelines were announced, None of the candidates has focused on how they will implement their proposals. Added to a less favorable international context, it largely explains the negative performance of local assets after the PASO”.

It should be noted that The Buenos Aires stock market fell almost 14% in pesos in September, which represented its worst month since March 2020 when the pandemic beganand cut with 5 consecutive monthly increases. The selective measured in pesos collapsed by 13.5% in September (measured in dollars by 18%). Leading stocks, sovereign bonds in dollars and pesos, and the main ADRs registered sharp declines of up to 31%.

Are there opportunities in the local market?

For Calcagninoif we focus exclusively in the equity segment to look for opportunitiesa first analysis that can be carried out is to think about what level of Merval in dollars corresponds to the current country risk levels.

In this regard, he said that if we analyze the relationship between these variables, from the beginning of 2018 to the present, we find that, with an EMBI of approximately 2,700 bps, the Merval in USD should be around 400 points, approximately -42% below the current 690.

However, he expressed, “given that the country risk has recently reflected difficulties in the public sector, if we carry out the same analysis for a shorter window of time and taking the differential between the yields of negotiable obligations and the rates of US Treasuriescurrent levels do not represent opportunity valuations.”

Who will win and what can we expect

In dialogue with Ambit, Mauro MazzaHead of Research Bull Marketanalyzed the possible electoral scenarios: “The base scenario is a second round. In that case we see that the gap continues to rise, the only exception to this would be a second round between Milei and Bullrich. In the case of Milei-Massa we expect the gap to increase to a record level, given the high risk of disorderly exit from the stocks.”

“With Milei and Bullrich we have a roadmap and we can operate accordingly, with Massa the uncertainty is total. We see that Massa does not have any stabilization plan, and that worries us, because we cannot rule out any scenario in a second round. all ways “The ideal scenario for the market is Milei vs Bullrich, and in that case being positioned in Banks and Bonds will be very winning.”he added.

If the second round is Milei-MassaFor Mazza, “we hope to maintain a similar tone to that of now, rebounds and strong declines. With bonds consolidating around US$25 or even less, and the banking sector hit hard.

“If the scenario is Bullrich-Massa, the market could be favored especially in bonds in pesos. Many agree that for the local market this combination may be the best, but the reality is that in the long term the best is Milei-Bullrich. Leaving third parties to Peronism will please the market, despite the short-term difficulties“, hill.

What to invest in in this context

Diego Martínez Burzacocountry manager of Argentina Inviuin dialogue with Ambit assured that if our profile is conservative and we want to arrive “covered” to the elections, one option is the cedars. “We would have to put together a low-volatility Cedears portfolio because the markets in the United States are not helping at this time either.” Some could be Walmart, Procter & Gamble or McDonald’s or Johnson & Johnson.

“If you want some Argentine risk, it could be some Negotiable Obligation in dollars”, he said but warned: “They are somewhat expensive compared to what other fixed income assets yield abroad because clearly there we have a problem of distortion of restrictions.” And for a very aggressive profile, he said “Today the bonds returned to parities of 25% in dollars, the hard dollars, like AL30 the GD30”with a time horizon of two years.

Regarding the local stock market, Burzaco said that “industrial companies such as the cement company would enter Black Hill and additionally, if the macroeconomy of the year 2024 stabilizes at some point, it will eventually be able to start growing. “In this framework there are good opportunities in the electric energy sector such as Central Port and when it comes to oil Vista Energy“but for a risky profile.

In the case of Mazzasaid that, taking into account the elections, “today our suggestion is that the Milei-Massa will take place, and we prefer to continue selectively positioning in some local companies such as DGCU2, CVH, TGSU2, IRSA, CRESUD and ONs cable (that are negotiated in Mep in Buenos Aires)”.

For Irureta“it is to be hoped that seek refuge in dollarized instruments such as Cedear, dollar bonds and even local stocks that export a large part of their production so it has mostly dollarized flows.”