He Bank of America (BofA) reaffirmed in the last week its optimistic and overweight stance regarding the Argentine sovereign bonds, suggesting a series of securities with high appreciation potential.
Despite the challenging economic outlook in Argentina, with a projected 3.8% drop in Gross Domestic Product (GDP) for this year, the financial institution identifies significant opportunities for investors willing to take risks.
According to Bloomberg, these opportunities are driven by a number of key factors, including potential difficulties in passing laws in Congress, the need for a stricter fiscal policy and the outcome of negotiations for a new program with the International Monetary Fund (IMF).
BofA’s recommendations
BofA’s recommendations include a preference for dollar-denominated sovereign bonds governed by New York law. The bank has adopted an overweight stance, suggesting that these securities offer a higher risk-adjusted return than the market average.
The bank’s strategy is based on several positive catalysts that could boost the value of bonds in the coming months. Among these, the work of the Minister of Economy, Luis Caputo, in seeking to achieve fiscal balance, as well as a projection of a 3% rebound in economic activity by 2025, are mentioned.
One of the standout bonds in BofA’s recommended portfolio is the Global 2038 (GD38). The bank made a strategic entry into this bond on June 6, 2024 at a price of $44, setting a target of $56. This approach indicates that the risk-reward has become asymmetric, with a higher probability of positive catalysts in the near future.
These catalysts include the final approval of the Bases Law and the Fiscal Package by Congress, which could strengthen the sustainability of the fiscal adjustment, in addition to possible new disbursements or agreements with the IMF.
Another bond receiving attention from BofA is the Global 2046 (GD46). The bank selected it over the Global 2035 (GD35) in a relative fixed-income investment strategy. With an entry in November 2024 at a price of $2.2 versus the GD35, and a target of $6, BofA sees the GD46 as a lower-cost option for investors interested in Argentina’s ability to meet its long-term obligations.
However, BofA also closed a position in the GD35 bond. This position was opened on July 17 and closed on April 9, generating a considerable profit. The bond was purchased at a price of US$29.8 and sold at US$46.1, reflecting the profit potential that the bank has identified in Argentine bonds despite the associated risks.
Overall, Bank of America maintains a cautiously optimistic view on Argentine bonds, highlighting the opportunities for returns for investors willing to face the risks inherent in Argentina’s volatile economy. The bank’s recommendations reflect a carefully calculated strategy that seeks to take advantage of specific catalysts such as the passage of fiscal measures and negotiations with the IMF.
However, the entity warns of the numerous challenges that could negatively impact these assets, highlighting the importance of a well-informed and vigilant investment approach.
Source: Ambito
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