In dollars and pesos: the winning portfolio to invest

The government achieved a fiscal surplus of $518,408 million, the contraction in spending was unprecedented. The inflation Annually as of January 2024 was 254.2%, tax revenues grew 256.7% annually. Current spending increased 114.6% annually in one year (an adjustment never seen before), while interest increased 346.8% annually.

Regarding current spending, primary current spending increased by 129.1%, while capital spending fell 50.3% annually (bye).

From this it follows that, Retirees, salaried workers and those who work in the public sector lost purchasing power, which generates a poverty effect in the economy.. On the other hand, having a fiscal surplus is a very powerful signal for State bonds to rise, since they ensure the repayment of the debt and can open the doors to new financing, at least to capitalize the Central Bank, boost foreign trade and that private parties can take out financing at a lower interest rate.

The benefits of having an orderly economy are very important, the adjustment is painful, the government’s strategy is clear, it aims to reduce inflation in the coming months, lower the rate in pesos and achieve external financing.

The fixed term interest rate is located at 110% annually, this implies an effective rate of 186.5% annually, versus an inflation that is projected to be 187.0% annually as of January 2025 according to our projections.

For the month of March, the government could rethink its current monetary policy, and if it observes that inflation follows a downward path, it could propose a lower interest rate to savers, which would make possible a significant drop in the active interest rate (rate of loans).

Active rates are very expensive, therefore, we do not rule out that the government will lower the fixed-term rate by March, and improve the financing offer for companies. In private reports we will give projections of the probable rate reduction.

Currently It is much more attractive to borrow in dollars than in pesosAccording to our projections, the wholesale dollar could increase by 115.0% annually, this would imply that by January 2025 it would be $1,776. As financing in dollars is offered at varying rates between 0.0% and 2.0% annually, we consider it a better option to take out debt in dollars and not in pesos.

For the enemies of debt in dollars, we tell you that it is possible to have coverage in the futures markets, The future dollar is the dollar today plus an interest rate. The future dollar in January 2025 is at $1,760, which implies a rate of 110.8% versus the value today, and an annualized rate of 116.2%.

Our projection of the dollar in January 2025 is $1,776, and the future dollar in January 2025 is located at $1,760. We will see what the market says in the future. The price of the future dollar allows us to visualize that we are not off course.

If we do rate arbitrage, we will come to the conclusion that it is more convenient to take debt in dollars and pay insurance (dollar future market), than to take debt in pesos. When the music changes you have to change the pace, the government changes and finances also change.

For savers

In the case of savers, if there is a drop in interest rates and there are marked differences between the expected inflation in the future and the current rate, what we will have is a rise in the parity of bonds in inflation-adjusted pesos, which will result in a negative interest rate by investing in the security. However, By buying this title we can earn a lot of money, because although it has a negative rate against inflation, it is very positive against the devaluation rate, and much more against the evolution of alternative dollars.

If you had bought the TX28 bond on January 16 and valued it in dollars, and made the comparison with the current value in dollars, you would be amazed to see a gain of more than 40% in dollars. To a lesser extent, something similar happens with the TX26 and DICP bonds.

The AL30 on January 16 was worth $43,860 per sheet, while today it is worth $48,400, it seems like a poor profit, but if I measure both prices in dollars we will see that this bond on January 16 was worth US$37.40 and today it is worth U $S 45.11, which implies an increase of 20.6% in dollars.

Conclusions

.- The market is observing a strong adjustment in public accounts, which translates into a significant recession in the market, and consequently a greater supply of dollars. To this we must add that there is no monetary issue without backing, something that we leave for private reports.

.- Inflation in pesos is much higher than the devaluation rate, for the period from 12 months to January 2025 we see inflation in wholesale dollars of 33.5% annually, and measured as a dollar bill of 83.5% annual.

.- The examples we presented show that investments in instruments in pesos adjusted for inflation are much more profitable than investing in bonds in dollars. The same would happen if we measured the investment in Negotiable Obligations.

. – All investment portfolio must have a balance between instruments in pesos, pesos adjusted for inflation, wholesale dollar, MEP dollar and CCL dollar. As you will see in Argentina we have 5 currencies and the best diversification will not lead to a balanced result, however, for now and only for now, the inflation-adjusted peso is beating them all.

. – The bond offer is varied, we have bonds backed by the treasury, the Central Bank and by private parties. There are different terms for taking risks, the shorter the term, the lower the rate and risk, the longer the term, the higher the rate and risk.

. – Argentina is in a financial change of unknown dimensions, if the investor continues to act as the Kirchnerist governments did and buy dollars, he is making a mistake. There is a new government, it sets a different path, decisions change and whoever does not adapt will lose money.

Financial analyst