Phase 2: Why stocks and bonds failed to gain a foothold at the start of the new monetary regime

In recent weeks, the economic team implemented various strategies to tighten monetary policy even further. Although one of the initial objectives of the plan, according to the Government, was “dry the weight square“Since June, this measure has been applied mainly as a response to the growing exchange rate gap and a flow of foreign currency that is not meeting the expectations of dollar income.

Thus, the Fiscal Liquidity Bills (LEFI) and the much-mentioned “Letters” debutedPhase 2” of the economic program, which were the starting point for the new measures. With most of the emission sources now completely closed, only a remnant of American whoreswhich can be exercised throughout their life until the end of the financial year (unlike European ones), $3.1 trillion, just 14% of the monetary baseaccording to private estimates.

The factors that hit the “argy”

However, despite the fact that the Government is seeking to send a positive message to the market with all these announcements, Argentine assets had a bad week (although this Friday 26th they are looking to recover some of the lost ground).

And as he explains well, Ambit Juan Alraportfolio manager of the group TPCG/Consultatiothere is some profit taking lately in the most volatile assets and an adjustment of the Cer Curve, which has not yet found a floor.

From his analysis, the monetary policies that the Government of “close the tap“They are on the right track. However, he points out that they have to go accompanied by some boost from the real economy to be able to accompany her. He also warns that uncertainty persists about what will come, so the market remains in “mode”cautious”.

“Although it seems to be on track in terms of monetary and fiscal policy, doubts persist about the implementation of the plan and its limits, which put market confidence in check, despite the fact that it is quite optimistic about the future of the current government,” warns Alra. He adds that, if the economic team obtains external financing, ““It is possible that we can have a scenario of improvements.” Thus, for him, “the question is: will it be lasting and sustainable?”.

The BCRA bonds/reserves ratio

He Stock Market Investing Group (IEB) explains it well in its latest report, in which it points out that the market is exposed to two opposing forces: On the one hand, the president and the economic team are fully convinced that the correct path “is to eliminate the fiscal deficit and balance the peso market, working on the liabilities of the BCRA” and, on the other hand, the view of some analysts and operators, who closely follow with concern the evolution of the other side of the balance sheet, international reserves.

“Hard dollar debt has fallen by an average of 8% so far this month. The market’s concern remains the dynamics of reserves“, they warn.

Juan Pedro Mazzastrategist of Cohen, He suggests in a conversation with this media that, since May, the bonds have been falling.because reserves are falling“. Without dollars, the Government’s ability to pay is obviously much lower. “And that is what worries the market a little: the fund” (of the program). This, despite the fact that President Javier Milei indicated that they will pay “whatever it takes” in the event of not being able to refinance the capital of the 2025 maturities and that he already has a Repo prepared as an alternative.

That is why, explains Mazza, that – despite the May Pact – the months of fiscal surplus, the approval of the Bases law and the announcement that the coupons and amortizations of January will be paid, have not “managed to reverse the fall of bonds“.

For the strategist, “The market’s concern is of a more structural and long-term nature, focused on how reserves will be accumulated now that the exchange rate has appreciated.“.

In this context, the decision to intervene in the CCL accelerates the situation, as the new news intensify the rate at which the Central Bank (BCRA) will lose reserves. This is due to several reasons:

• Cash sales with liquidation by the BCRA (i.e., the intervention in the dollar).
• The acceleration of the payment scheme and access to importswhich puts additional pressure on reserves.
• The Relaxation of restrictions on access to the MEPwhich increases the demand that the Central Bank must cover through its interventions.

Mazza analyzes that all this set of factors generates Concern in the market and everything revolves around reserves. Although the analyst’s optimistic view is that “there is actually something that the Government sees and we don’t, which has to do with the receipt of a loan or an agreement with the International Monetary Fund (IMF)” that will allow it to accumulate reserves again.

But, in the meantime, The market is waiting for announcements to be made in that direction.and until that happens, assets will probably continue to fall or move sideways.

This look coincides with that of Federico Victoriocofounder of Andean Investments (IA) who adds that it is a reality that since May to date there has been a correction in local assets, but asks to observe “the full movie and remember the rally they have been having bonds from December 2023 and stocks from 2022. “It is important, always in the face of these events, to look at the whole film and with perspective.“.

“We believe that the market bought the change of economic and political direction, but to continue paying, begins to demand from the Government results beyond the fiscal order. If not more related to the increase in the level of activity and also in terms of lifting the restrictions,” warns Victorio.

Therefore, the analyst maintains that for now He sees no chance of a hard dollar curve trading above US$60 without an exit from the currency controls. Although beyond that, he does estimate that for assets measured in dollars, volatility was not something “so far from what Argentina has accustomed us to”

The BCRA will be able to accumulate reserves: an optimistic view

This is how a week that was a roller coaster for Argentine assets ends, both on the foreign and local fronts. Adcap Financial Group They believe that “the market overreacted to the announcement of the CCL intervention by using the reserves”, which used to function as payment capacity for the coupons.

“We believe that The Treasury will assume this function and accumulate dollars through the primary surplus. We therefore remain optimistic and expect positive price action in the coming weeks. We believe bonds will adjust favourably,” the City broker said.

For Adcap, The main risk lies in the president’s approval rating. Well, the economic plan includes a strong recession and requires income in dollars from various sourcessuch as money laundering, the Large Investment Incentive Regime (RIGI) and sales by agro-exporters stored in silo bags. All of this depends on the confidence of investors in the success of the plan.”

Victorio concludes by confirming his “constructive vision for Argentine assets”, where today he finds a better relationship risk/reward in fixed income than in variable incomealthough it highlights the importance of having diversified portfolios to suffer less from the volatility typical of a country with a particular dynamic, beyond the global context, where the price of soybeans has not been favorable.