Markets in “wait and see” mode due to the Bases Law: what will happen to bonds and stocks?

The Argentine financial market moved mostly downwards on Friday due to a waiting period imposed by investors awaiting treatment in Congress of President Javier Milei’s Base Law in search of deregulating the economy. Market attention is on bonds and stocks.

Within the framework of the debate in committee in the Senate, where the ruling party seeks to obtain an opinion to debate the Bases Law and the fiscal package in the Upper House, it was decided to call an intermission room this week that begins by opening the possibility of obtaining a favorable support . The Government has already shown willingness to make changes. The problem is that this will make the projects return to Deputies and start the “thread” and uncertainty again.

“In the medium term, if lower inflation is achieved, and economic policy allows for greater private activity, the necessary conditions would be met for sustainable economic growth, which would be supported by more bank financing,” said Jorge Day of the Mediterranean Foundation. .

The ‘Bases Law’ and the ‘Fiscal Package’ promoted by the ruling party aim to deregulate the economy, open the market and change the rules of the game in fiscal matters to promote investments.

Bonds and stocks

In the midst of investor caution, the leading stock index S&P Merval lost 1.91% as a provisional close, after falling 4.07% in the previous three trading days and setting a record level of 1,505,718.34 points on Tuesday.

The shares of the state oil company YPF lost 6.81% after the presentation of its balance sheet for the first quarter of 2024 with net profit of 657 million dollars and income of 4,310 million dollars, while it ratified its investment plan for 5,000 million dollars this year.

For their part, over-the-counter sovereign bonds fell 0.9% on average, with a country risk measured by the JP.Morgan bank that rose nine units to 1,272 basis points. Bonds are up almost 100% since Milei took over and now appear to have encountered some resistance. The AL30, the star of the market, stagnated at around US$60.

There is speculation in the market that this resistance to continue rising bonds could be broken if the country risk falls again and is close to 800 points. It should be noted that Milei took over with around 2,500, so the indicator was reduced almost by half.

What do analysts see for the dollar?

“Exchange policy leads us to an appreciation of the peso, which ends up favoring instruments in pesos that adjust for inflation in the market,” said analyst Salvador Di Stefano.

In the exchange market, the wholesale activity of the peso lost slightly 0.06% in an operation controlled by the central bank (BCRA), at 883.5 units per dollar along with a rigid devaluation policy of 2% monthly.

“The expectation of devaluation is contained with the ‘crawling peg’ at 2% in the official and cross controls plus 20% of exports in the ‘cash with liquidation’,” said the consulting firm EcoGo.

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In the alternative segments, the currency operated calmly at 1,089.6 per dollar in the “counted with settlement” (CCL) stock exchange, at 1,035.7 in the so-called MEP dollar. For its part, in the marginal or “blue” it advanced sideways to 1,040 per dollar, far from its minimum of 1,255 units noted at the end of January.

The day before, the BCRA placed 1,709 million dollars in its seventh tender for ‘Bopreal’ bonds intended to settle debts with importers and which can be used by legal entities that would like to distribute profits and/or dividends to non-resident shareholders.

“Offers for 69 million dollars in nominal value were received from companies with debts for imports and 1,640 million for transfer of profits,” the BCRA reported.