And Argentina configures “the greatest overponderation” of its Latin America portfolio with exposure through banks and energy. This, according to the document, despite the correction of local markets so far from 2025, because for the institution the country has the largest catalysts in the region: “Mid-term elections, disinflation, regulatory disruption and a possible agreement with the International Monetary Fund (IMF), which could be the key to lifting capital controls”
An unprecedented adjustment and inflation projection
The bank explains that the Milei government executed a drastic reduction of public spending with which it achieved a tax adjustment of 5% of GDP and achieved the zero deficit in 2024. “This effort allowed to reduce Inflation of levels close to hyperinflation (25% monthly in December 2023) to 2.2% monthly in January 2025, ”he warns.
And it emphasizes that despite the initial fears, the economic contraction was less than expected, with a rebound in GDP in the second half of 2024, driven by The financial sector, energy and agribusiness.
According to them Bofa inflation projections the consumer price index (CPI) at the end of 2025 will be from 27.8% and for 2026 of 20.9%. The calculation of the bank is less optimistic than that of the Survey of Expectations (REM) that the Central Bank (BCRA) performs which estimates an inflation of the 23.2% For the year.
The report indicates that political support for reforms and accumulation of international reserves They will be key to economic recovery in the coming years. So see as an obstacle to these changes that the “political cycle is short.”
“The frequency of elections in Argentina It is seen as an obstacle to the approval of structural reforms In Congress. In addition, historically it has generated fiscal deviations before the elections, and in some cases, adjustments immediately later, ”says the document.
The Bofa sees positively the BCRA strategy to drastically reduce inflation with fiscal balance as an anchor, a decrease in the monetary base and an exchange rate with “mini -value”. “Although the BCRA does not establish an explicit objective of inflation, the government made clear its intention that inflation aligns with the rhythm of the”CRAWLING PEG“, which is currently 1% monthly,” says the report.
About the dollar, GDP and stocks
As for GDP, the Wall Street giant Wait for a growth of 4.5% for 2025after the strong contraction of 2024. By 2026 an expansion of the 3.3%. As for the official exchange rate, the bank projects it andN $ 1400 for the last quarter of the current year.
According to the REM, by December 2025, the set of participants predicted a nominal exchange rate of $ 1,201/USD, so Bofa projection is 17% higher. However, it should be noted that other international banks such as HSBC estimates it at $ 1,270 and JP Morgan at $ 1,300.
At that point, the Bofa explains that Argentina You need large gross capital tickets to finance payments of external public debt. “Although the levels are not high, 61% is called in dollars and is of short duration (average of 5 to 3 years), which generates pressure, in particular because Argentina does not yet have fluid access to international markets,” he warns.
And he adds that Milei is looking for a new program with the IMF (although the country owes about US $ 41,000 million in the background. “We hope it will be reached in March. We foresee a complete lifting of capital controls and the unification of the exchange rate by the end of 2025”, He states.
Close to sovereign bonds
The bank is clear when it indicates that Argentina had the best total return rate (TRR) in 2024 among sovereign bonds in emerging markets. “With a 100%return, since the macroeconomics greatly exceeded expectations” This means that investors who bought Argentine external debt bonds in 2024 They obtained greater profits compared to those who invested in bonds from other emerging countries.
At this point the bofa makes clear that He prefers Argentine corporate debt above the sovereign. This is because the emitters are “extremely experienced” in managing crisis and maintaining solid credit profiles such as low leverage and adequate liquid).
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The report mentions that Argentine companies paid +26% in 2024, which exceeded the high performance index of emerging markets (EMHL). “This performance is due to Macroeconomic improvement under the government of Mileimore favorable regulations and the growth of Energy sector, ”he says.
Not including the provinces, the Argentine corporate index would have obtained a return from the 15%while the provinces achieved a 73% (including the smallest). And since they are underway Great investments in oil and gasthe Bofa prefers the negotiable obligations (ONS) that the sovereign titles and raises “Nine reasons” that justify their position.
Corporate vs. Sovereign
- Upper history: Corporate bonds have shown better performance over time.
- Greater recovery rate: After a default, corporate bonds usually recover more value than sovereigns.
- Companies must continue to operate: Unlike the government, companies actively work to restructure their debt and continue in the business.
- Less emitters than 20 years ago: Two thirds of the companies that issued in 2005 are no longer on the market.
- More solid credit profiles: Only the strongest companies continue to broadcast internationally.
- Dollars in dollars and exports: Several companies generate income in dollars or have them linked to the US currency.
- Some emitters have offshore support: They can have guarantees of foreign matrices or shareholders.
- Most companies are private: This promotes a management focused on profitability and more solid foundations.
- Local shareholders with more experience: National investors usually manage Argentine capital markets better than foreigners.
About the National Equity
The Bofa remarks that Argentine actions tripled their valuewhich motivates expectations about a possible emerging market reclassification “in the coming years.”
However, the report warns that the sustainability of this recovery will depend on the fiscal consolidation and the country’s capacity to restore access to international financial markets.
The document highlights the potential of several strategic sectors that could benefit from the current reforms and ratifies the exposure of the financial colossus in sectors such as financial and energy. Thus stands out:
- Natural energy and resources: oil production has grown 50% since 2019with energy exports that represent 12% of the totaldriven by cow a death and a greater investment in infrastructure.
- Agroindustry: The sector remains a fundamental pillar of the Argentine economy, with a more favorable context for the investment and export of agricultural products.
- Financial sector: Banks began to reactivate the credit supply, driven by digitalization and greater macroeconomic stability, which could strengthen real estate consumption and investment in the coming years.
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“Argentina has a market capitalization adjusted by Free Float close to US $ 52 billion, with 101 companies listed in the local market. The country records an average daily volume of operations of US $ 136 million. The Merval Index is the most important of the Buenos Aires Stock Exchange, ”explains the Bofa to its investors.
In the S&P Merval indexliquidity is mainly concentrated in three sectors: Financial, Energy and Public Serviceswhich represent the 80% of the local index. The leading sector, Financialequivalent to 34% of the index.
“Argentina is not an emerging market due to limited accessibility to the market.” The history of Argentina in the MSCI indexes has been marked by ups and downs during the last four decades. “The first step to recover EM status would be the elimination of the stocksalthough issues related to market infrastructure and the stability of the institutional framework must also be addressed, ”says the document.
Thus, the Bofa concludes that Argentina has the opportunity to consolidate its economic transformation if it maintains the course of reforms and achieves access to external financing. Despite the political and economic challenges, for the Bank the country shows encouraging signals of recovery and stability, which makes it an attractive investment destination in the region. The aforementioned document is a guide that the institution offered its investors to understand the time of Argentina and make investor decisions with a “background” where it comes and where it points.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
