Argentine stocks shine: ETFs of national companies lead returns in the region and contrast with those of Brazil and Mexico

The Argentine variable income looks unstoppable. He S&P Merval measured in dollars shows an increase in the year that exceeds 50%, while the ETF (traded fund) of Argentina –ARGT or iShares MSCI Argentina and Global Exposure ETF Fund– remains the one with the highest performance worldwide so far in 2024, with almost 40% of profits, well above Brazil (-17.19%), Mexico (-20%) and Colombia (+2.7%).

A stockbroker explains to Scope that the good performance of the Argentina ETF, which also surpasses that of other emerging markets, such as China (+21.1%) and Taiwan (+20.3%), is linked to the optimism that exists regarding the management of Javier Milei“especially the political capital that he achieved in Congress after the vetoes of the pensions and university budget, which allows him to maintain the fiscal deficit goal.” Also mentions the decline in inflation as a favorable elementbut, for the operator, the green that Argentine assets show is linked, more than anything, “to the blank check” that the market offers, for now, to the libertarian management.

This happens despite a generalized economic crisis that affects the majority of Argentines, since the stock market does not always faithfully reflect the conditions of the real economy. However, despite these contrasts, it should be noted that the high demand for Argentine shares by investors suggests that some underlying factors draw attention to Argentine assets.

ARGT: what’s behind its performance

In conversation with this medium, Gabriel Proruk, Equity Research Team Leader in the Investing in the Stock Market Group (IEB)maintains that, when the Federal Reserve (Fed) announced in the middle of the year that it would not continue with increases in interest rates due to the strength of the labor market and then carried out the first rate cut at its last meeting, Investors had already anticipated this scenario before.

Proruk explains that this sparked a rally in several emerging market equity indices, such as INDA (iShares MSCI India ETF), EWZ (iShares MSCI Brazil ETF), EWW (iShares MSCI Mexico ETF) and ARGT (Global X MSCI Argentina ETF). . Well, thanks to the prospect of a more favorable environment for risk assets, improved their performance.

However, the performance of the ARGT ETF outperforms its peers. “Includes Argentine companies listed in the United States, such as Free marketthe one with the highest weighting, Grupo Financiero Galicia and YPF,” explains Proruk.

And he adds that, from his analysis, there is “two factors” key that explain why the Argentine ETF stands out compared to others in the region. First, the high correlation between the Argentine stock market and Treasury bonds. “Sovereign debt presents a positive performance during the same period, driven by the correct execution of the Government’s economic plan. “This has strengthened the local equity market, placing it at levels not seen since the historical highs reached in 2018 (during Mauricio Macri’s administration),” he points out.

And, on the other hand, the strategist mentions the improvement in month-on-month terms of different indicators of economic activity, along with a path of downward inflation and rearrangement of relative prices. “This resulted in an improvement in the balance sheets of Argentine companies and their future prospects,” he says.

Likewise, remember that the lowering of rates and lower yields for public securities provoke a transition in the banking business, “to traditional banking, driven by private loans, which gave greater impetus to the ARGT ETF, which has Grupo Financiero Galicia (GGAL) and Banco Macro (BMA)” as some of the main holdings.

Country risk: there is still room to compress

For its part, Pedro Moreyra, director of Guardian Capital, In statements to this medium, he slips that national assets present a superior performance compared to those of other emerging markets, in part, because Argentina was far behind in terms of country risk (PR).

“Countries like Türkiye and Egypt have a PR of between 700 and 900 points and others closer, such as Chile, Colombia and Brazil They operate between 200 and 500 points. Meanwhile, Argentina still has room to reduce its riskwhich benefits their assets,” says Moreyra.

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The analyst recalls that the country risk It is a key factor in attracting investmentsespecially foreigners. Even though emerging markets have faced adverse conditions in recent weeks, Argentina maintains an upward trend“driven by better fundamentals and economic expectations,” says Moreyra, in line with what Proruk stated.

Finally, the strategist indicates that the growing interest of large investment banks and important hedge funds results in Argentine assets gaining space in the watch lists of “traders” and portfolio managers, which reinforces its appeal. Thus, while other global indices face moments of calm or decline, the Argentine market stands as a beacon of potential gains. At least, that’s how its ETF states it in the first part of the year.