Dollar and bonds: the fine print of the market and keys to investing

If we return to the traditional analyzes of the past, which are probably not applicable in the present, the reserves as of March 15, 2024 amount to US$ 28,209 million, while the stock of paid and unpaid liabilities amounts to $ 53.2 trillion , this gives us an equilibrium dollar value of $1,885.

However, at this juncture it is difficult to predict a rise in the dollar, since the fuel for such a rise does not exist. According to the balance sheet of the Central Bank, monetary circulation as of December 7, 2023 amounted to $6,560 million, while as of March 15, 2024 it amounts to $7,824 million, which represents an increase of 19.3%.

The inflation From the month of December 2023 to February 2024, it amounted to 71.3% annually, if on the first March 15 we estimate an inflation of 5.0%, for the period March 15, 2024 to November 30, 2023, the inflation would add 79.8%.

The liquefaction of pesos is incredible, since prices rose 79.8% and monetary circulation 19.3%, with these numbers we can affirm that there will be a lack of pesos in the market, which stifles the pressure on the price of the dollar blue, which keeps it at very depressed levels in the $1,020 area for purchase. We are also going to have a more formal economy, since due to the lack of banknotes, payments are made by electronic means of payment that leave the evidence at the AFIP’s disposal. The way of doing business changes, the informal economy decreases.

More tourists, but with a deficit

With the arrival of Javier Milei to the government, a greater income of dollars from foreign tourists is noticeable. In December they received US$128 million, in January US$254 million and in February US$220 million. Regarding Argentine expenditures to pay for trips abroad, in December US$340 million were spent, in January US$406 million and in February US$427 million. The deficit for the quarter is US$571 million, which continues to be high based on the shortage of dollars that the country has.

Foreign exchange market, the fine print

The reserves as of February 29 were located at US$ 26,690 million, if we see the difference between the exports collected and those paid in the period between December and February, they add up to US$ 10,319 million, which is the great contribution that was made foreign trade, when in the same period of time the Central Bank bought US$ 7,714 million.

An interesting fact is to compare the imports registered in the INDEC and those settled by the Central Bank between December and February. While the INDEC reported imports for US$12,961 million, those that were actually paid were US$3,479 million. This would imply that imports of US$ 9,482 million remain to be paid.

If the Central Bank purchased US$ 7,714 million between December and February, US$ 9,482 million of imports would remain to be paid. This would imply that we are not gaining reserves in real terms, since sooner or later imports must be paid for. To this we must add the remainder of unpaid imports from the previous administration.

Nor can we ignore that the Central Bank proceeded to increase its debt in foreign currency. As of November 2023, the BCRA debt in foreign currency amounted to US$ 5,138 million, while as of February 29, 2024 it amounted to US$ 8,478 million. This explains an increase of US$3,340 million in this line of the Central Bank.

Conclusion

. – Argentina immediately needs to strengthen the Central Bank’s reserves, since we have a severe problem of lack of dollars due to the inheritance received.

. – To rebuild reserves, an import payment schedule was carried out that will begin to take effect in the coming months. If corn harvest estimates fall, and wheat planting declines, we could begin to have severe problems in the second half. The soybean harvest for now remains much higher than the previous year, prices look similar to those of a year ago. We hope that the pace of sales of the field will help.

. – The AL30 bond is currently worth US$53.40 and has a return rate of 24.3% annually. If Argentina were to lower its country risk to similar levels as Pakistan, which has a CCC+ rating, the AL30 bond should be worth US$ S 73.0 lloque could report a profit of 36.7%.

. – As you will see, a series of concurrent situations is essential, we need fresh money to arrive from abroad, a good harvest, that harvest be liquidated, that laws be approved in Congress that support the change in the economic regime, that fiscal discipline be sustained and monetary.

. – As a positive fact, the synthetic balance of the Central Bank expressed in dollars as of November 30 gave us a deficit of US$ 14,230 million, as of March 15 it gives us a deficit of US$ 7,046 million. With the patch of postponing imports, placing the Bopreal and having a fiscal surplus we have had very good results, but given the dynamics that are coming for the next few months it is not enough, a disbursement of funds from abroad is necessary to strengthen reserves, otherwise the Financial improvements that will then be transferred to the real economy will be much slower.

. – Separate paragraph for the improvement in inflation rates, which show us that the economy is recovering much better than in previous crises. Prices have begun to decline, it is not ideal, but we are on the right track.

. – This is not the time to buy dollars, it is more comfortable to have sovereign bonds, since, if the economic plan is consolidated, there is a floor of 30% of future profits. Instead, any decline in bonds from current levels should not be more than 10%.

. – AL30 with the estimated price of US$ 73 in a positive scenario would have an internal rate of return of 11.5% annually. It is currently worth US$ 53.4% ​​and has an annual internal rate of return of 24.3%. In the face of adversity and a 10% drop that places the bond at US$ 48.0, the internal rate of return would be 29.4% annually. Below this last quote we would be losing reformist tendency and image.

Financial analyst